Cross Border Investment Essay Example | Topics and Well Written Essays - 3000 words

Cross Border Investment - Essay Example Investors need to identify these issues and act wisely to minimise the risks involved in cross border investment while maximising the expected returns out of the investment. This paper identifies and elaborates major issues related to cross border investment and viability of this tool in portfolio diversification. Europe is known to be one of the pre-eminent real estate investment destinations for foreign investors. Western European countries such as France, United Kingdom, Germany and Italy etc have remained to be the most favourable real estate markets; however, properties in these countries are extremely high-priced. This is directing attention of foreign investors to the Eastern European countries. These emerging and new markets offer various investment attractions to the foreign investors. Investors from all parts of the world in particular from the UK are taking keen interest in exploring these countries' investment potential. Furthermore, as these countries move towards EU accession, significant growth in their commercial and business activities can be observed. This further adds up to the attraction of these countries as a tool for international portfolio diversification. ... Myer et al. define the term diversification as, "the complete removal of unsystematic risk in an effort to minimize the fluctuations of a portfolio's return in excess of what the market will reward" (1999, p. 163). Diversification in the form of investment portfolio has remained popular among investors for the last several decades. Through portfolio diversification companies and investors invest their funds in several dimensions such as shares, securities, bonds, derivatives and real estate etc. One such strategy becoming substantially appealing to investors in present times is diversification of risk through investment in international financial and real estate assets. Under cross border investment, companies and investors look for investment opportunities around the world and make the most of favourable situation in foreign countries. Investors might opt for either a complete international investment portfolio or a combination of domestic and international financial assets and real estate. Investors are supposed to attain maximum returns out of their invested funds when they diversify the investment over a range of different countries with significant investment opportunities. Research demonstrates that cross border diversification of investment portfolio carries substantial benefits for the investment with respect to risk reduction as well as return maximisation (for example, Addae-Dapaah & Loh (2005); Cheng et al. (1999); Gordon et al. (1998); Sirmans and Worzala (2003) etc.). Cheng et al. affirm this point as, "significant diversification benefits are available when investments are spread out over many different countries" (1999, p. 463). Investors can not only take advantage of favourable situation prevailing in