Quantitative finance Essay Example | Topics and Well Written Essays - 2500 words

Quantitative finance - Essay Example More investment capital has been attracted by different countries following significant growth in the capital markets, which has also encouraged sharing of international risks (Ahmed and Gooptu, 1993). Also, deregulation and liberalization of capital and foreign exchange markets has been practiced by many countries in the recent decades. This has been achieved through relaxing and withdrawal of statutory barriers on capital account transactions hence boosting many emerging market economies. Furthermore, many countries have realized the benefits of capital inflows through liberalization of domestic financial markets. In the recent years, investment is no longer tied on the sum of domestic savings. In addition, developments in technological innovation and capital accumulation have contributed to economy’s growth, which is spurred by foreign capital inflows. Other important developments that have led to a major reduction in information and transaction costs related to international investments include computer and telecommunication technologies (Tara, 2005). Products such as country funds and American Depository Receipts (ADRs) have been introduced by investment and commercial banks, hence facilitating international investments. Furthermore, the potential gains from international investments must have become more visible amongst many investors and hence the surge in international portfolio investment (New features of the stock market surge, 2005). The security returns amongst different countries differ because different countries differ in terms of resource endowment, industry structure and macroeconomic policies. This difference also results from the fact that different countries have business cycles that do not occur simultaneously, meaning that a particular country could be experiencing a boom while another one experiences recession at the same time. As such, securities from the same country undergo similar macroeconomic policies, and business cycles thus