International securities investment theory and international capital flow theory

The classical theory of international securities investment came into being before the rapid development of international direct investment and multinational corporations. It believes that the cause of international securities investment is the interest rate difference between countries. If the interest rate of one country is lower than that of another country, financial capital will flow from the country with low interest rate to the country with high interest rate until there is no difference in interest rates between the two countries. Furthermore, under the condition that international capital can flow freely, if there are differences in interest rates between the two countries, then the securities prices that can bring the same benefits between the two countries will be different, that is, the securities prices of high-interest countries are low and those of low-interest countries are high, so that low-interest countries will invest in the securities of high-interest countries.

The relationship between the return, price and market interest rate of securities can be expressed as: c = I/R.

In the above, C stands for the price of securities, J stands for the annual income of securities, and R stands for the market interest rate of capital.

Suppose that bonds with a face value of $65,438+0,000 are issued in the A and B markets, and the interest rate in the A market is 5%, while the interest rate in the B market is 5.2%. According to the above calculation, the price of each bond in country A is 1200 USD, and that in country B is 1 154 USD ... It can be seen that because the market interest rate in country A is lower than that in country B, the price of the same bond in country A is higher than that in country B. In this way, the capital of country A will flow to country B to buy securities in order to obtain higher income or spend more.

Defects of this theory:

(1) only explains that capital flows from low-interest countries to high-interest countries, but fails to explain why there is a large amount of capital flowing in both directions;

(2) Based on the free flow of international capital, it is inconsistent with reality. In reality, the control of capital flow in various countries can be seen everywhere;

(3) Even if there are interest rate differences between countries, it will not necessarily lead to international securities investment;

(4) This theory only regards interest rate as the basic point of analyzing problems, which is inaccurate. Modern portfolio theory, also known as modern portfolio theory, was first put forward by American scholar H.M.Markovitz in his book The Choice of Securities in 1950s, and later developed by J.Tobin. This theory uses the "risk-return survey method" to explain how investors choose among various assets to form the best combination, so that when the investment income is fixed, the risk is minimum, or when the investment risk is fixed, the income is maximum.

According to this theory, all assets have the duality of risk and return, and the purpose of ordinary investors to invest in securities is to obtain certain returns. However, the highest income is accompanied by the greatest risk, and the principal may be lost. The risk is measured by the variability of the rate of return, and the statistical standard deviation is used to indicate that investors will make a portfolio according to their expected rate of return and its standard deviation in a period of time, that is, investors will invest their funds in several securities to establish a "portfolio" and reduce the risk through the diversification of securities. But for a period of time, the yield of securities is uncertain. This uncertain rate of return is statistically called a random variable. Markowitz uses its two dynamic differences, that is, centralized trend and decentralized trend, to explain the expected return of securities investment and its standard deviation. The expected return is represented by the average return, which can be regarded as a measure of the potential return related to any portfolio investment. The standard deviation explains the dispersion degree of each variable to the average value, expresses the variability of expected returns, and measures the risk of securities investment with any combination. Therefore, investors should not only take the expected return as the only criterion for selecting securities, but also pay attention to the stability of securities investment income. A variety of securities portfolios can improve the stability of investment returns and reduce investment risks, because the gains and losses of different securities in a variety of securities portfolios can offset each other and play a role in diversifying risks. As investors, they may choose securities from different countries as investment targets, thus causing two-way capital flow between countries.

Modern portfolio theory points out that any asset has the duality of income and risk, puts forward the idea of reducing investment risk by portfolio method, and reveals the reasons for the mutual flow of international capital, so it is progressive and reasonable. However, this theory is mainly used to explain international securities capital flows, but it cannot explain international direct investment. In addition, the theory assumes that the market is completely efficient and all participants can obtain sufficient investment information at the same time, which is inconsistent with reality, so the theory also has its defects.