All, if a country becomes more integrated with global economy, the risk premium will decrease and the E(R) will decrease.
If country A is expected to become more integrated and country B is expected to remain unchanged, would you allocate money to country A or country B? I would initially think country B as the E(R) for country B would be unchanged but country A would decrease.
However, there is a CFAI online question that states because a country is becoming more integrated, the asset prices from country A will increase as the required returns are now lower… so discounting cash flows at a lower required return increases asset prices. Which makes sense to me as well.
Any thoughts?