Cross-Border Diversification in Bank Asset Portfolios

Taking the mean-variance portfolio model as a benchmark, we compute the optimally diversified portfolio for banks located in France, Germany, the U.K., and the U.S. under different assumptions about currency hedging. We compare these optimal portfolios to the actual cross-border assets of banks from 1995-1999 and try to explain the deviations. We find that banks over-invest domestically to a considerable extent and that cross-border diversification entails considerable gain. Banks underweight countries which are culturally less similar or have capital controls in place. Capital controls have a strong impact on the degree of underinvestment whereas less political risk increases the degree of over-investment.international banking, portfolio diversification, international integration

Cross-border diversification in bank asset portfolios

Taking the mean-variance portfolio model as a benchmark, we compute the optimally diversified portfolio for banks located in France, Germany, the U.K., and the U.S. under different assumptions about currency hedging. We compare these optimal portfolios to the actual cross-border assets of banks from 1995-1999 and try to explain the deviations. We find that banks over-invest domestically to a considerable extent and that cross-border diversification entails considerable gain. Banks underweight countries which are culturally less similar or have capital controls in place. Capital controls have a strong impact on the degree of underinvestment whereas less political risk increases the degree of over-investment. JEL Classification: G21, G11, E44, F40International banking, international integration, portfolio diversification

Finiteness of cominuscule quantum K-theory

The product of two Schubert classes in the quantum K-theory ring of a homogeneous space X = G/P is a formal power series with coefficients in the Grothendieck ring of algebraic vector bundles on X. We show that if X is cominuscule, then this power series has only finitely many non-zero terms. The proof is based on a geometric study of boundary Gromov-Witten varieties in the Kontsevich moduli space, consisting of stable maps to X that take the marked points to general Schubert varieties and whose domains are reducible curves of genus zero. We show that all such varieties have rational singularities, and that boundary Gromov-Witten varieties defined by two Schubert varieties are either empty or unirational. We also prove a relative Kleiman-Bertini theorem for rational singularities, which is of independent interest. A key result is that when X is cominuscule, all boundary Gromov-Witten varieties defined by three single points in X are rationally connected.Comment: 16 pages; proofs slightly improved; explicit multiplications in QK(Cayley plane) from v1 no longer necessar

Projected Gromov-Witten varieties in cominuscule spaces

A projected Gromov-Witten variety is the union of all rational curves of fixed degree that meet two opposite Schubert varieties in a homogeneous space X = G/P. When X is cominuscule we prove that the map from a related Gromov-Witten variety is cohomologically trivial. This implies that all (3 point, genus zero) K-theoretic Gromov-Witten invariants of X are determined by the projected Gromov-Witten varieties, which extends an earlier result of Knutson, Lam, and Speyer. Our proof uses that any projected Gromov-Witten variety in a cominuscule space is also a projected Richardson variety.Comment: 13 page