The fundamental rationale for international portfolio diversification is that it expands the opportunities for gains from portfolio diversification beyond those that are available through domestic securities. However, if international stock market correlations are higher than normal in bear...

Limited liability is valuable because it provides equity holders the option to exit when faced with negative cash flows. However, when two firms merge, it is less likely that the aggregate cash flows will be negative since the negative cash flows of one firm may be offset by the contemporaneous...

This note identifies three properties of a risk measure, the acceptance of all of which implies the acceptance of the VaR risk measure; and the rejection of any one of which implies the rejection of the VaR risk measure. First, a risk measure should reflect weak aversion to losses. Second, only...

This note analyzes the impact of political risk on investors' required return and the multinational corporation's cost of capital on foreign direct investment using the basic diversifiable-nondiversifiable dichotomy of portfolio theory. Whether or not a particular political risk affects the...