Comparison of S&P 500 & Emerging Markets: Volatility, Performance, Risks, & Exchange Rates, Slides of Management Fundamentals

Download Comparison of S&P 500 & Emerging Markets: Volatility, Performance, Risks, & Exchange Rates and more Slides Management Fundamentals in PDF only on Docsity! Comparison of Market Volatility    • Standard deviation is a measure of an investment’s past volatility. The  higher the standard deviation, the greater the volatility.   Emerging Markets Last 3 years Last 5 years Annual return 24.45% 21.46% Standard deviation 17.71% 18.11% S&P 500 Annual return 10.06% 6.95% Standard deviation 6.27% 12.29% Docsity.com Second Practical Issue * Good News: Emerging markets have offered higher returns than the United States. ¢ Bad News: BUT, with greater volatility (i.e., greater risk). ¢ Potential Good News: Greater volatility means there is the potential on the upside for big returns. ® Docsity.com And More …  • Inflation Risks: Equity investors do not like  high and rising rates of inflation.  – Examine each country’s inflation pressures.  • Chile, Turkey, Russia today.  • Interest Rate Risks: Equity investors do not like  high and rising interest rates.  – What is each country’s central bank doing.  • Chile, Turkey, Brazil, and Russia today.      Docsity.com Third Practical Issue  • Bad News: Unfortunately, the emerging  markets comprise a very diverse set of  countries with profoundly different  political, economic, cultural, and regulatory  regimes.  This makes following them  difficult.  • Good News:  If you do get the country right,  you probably don’t have to worry about  companies and sectors.  Docsity.com Last Issue: Exchange Rates ¢ Since you are based in the United States, you are ultimately concerned with the US dollar return on your emerging market investment. * Question? Do exchange rates have an impact on your emerging market returns? ¢ Answer: Definitely, YES ® Docsity.com