Teaching Note | HBS Case Collection | August 2005 (Revised April 2014)

Innocents Abroad: Currencies and International Stock Returns

by Mihir A. Desai, Kathleen Luchs, Elizabeth A. Meyer and Mark Veblen


What do international stocks contribute to the portfolio of a U.S. investor? How do currencies interact with stock price movements in determining the benefits of international diversification? This case helps students compare the risks and returns of foreign stock markets with each other and with the U.S. market and to examine the risks and returns of international diversification. Students must calculate returns, adjust for currencies, derive correlations, and map efficient frontiers based on raw data.

Keywords: diversification; international CAPM; CAPM; home bias; international finance; currency risk; exchange rate risk; international stock market returns; stocks; risk and uncertainty; investment return; financial services industry; United States; emerging markets; currency; investment portfolio; Currency Exchange Rate; Stocks; Financial Markets; International Finance; Investment Return; Currency; Risk and Uncertainty; Emerging Markets; Investment Portfolio; United States; Australia; Canada; China; Germany; India; Japan; United Kingdom;


Desai, Mihir A., Kathleen Luchs, Elizabeth A. Meyer, and Mark Veblen. "Innocents Abroad: Currencies and International Stock Returns." Harvard Business School Teaching Note 206-012, August 2005. (Revised April 2014.)