Borochkin A.A.National Research Lobachevsky State University of Nizhny Novgorod (UNN), Nizhny Novgorod, Russian Federation borochkin@yandex.ru
Subject The article deals with the issues of international portfolio investment in terms of a fluctuating market environment and shock changes in the economic policies of States. Objectives The article aims to propose a certain investment strategy that could minimize the investor's exposure to macroeconomic shock in the international stock market and assess the effectiveness of stock market indicators of market uncertainty in relation to portfolio investment. Methods To assess the risk of investment, I used the indices of stock market volatility and uncertainty in economic policy for each of the countries reviewed. Portfolio shares are determined by a global optimization method. Average expected shortfall minimization, risk exposure factor minimization, and the investor's expected quadratic utility function maximization are used as optimization criteria. To assess the cost-effectiveness of investment strategy, I used the mean-variance analysis. Results Equity investments, which are least susceptible to macroeconomic shocks, provide one percent of the annual portfolio income additionally in developed countries and up to six percent in the developing world. Conclusions The reduction in the impact of macroeconomic shocks through the optimization of the investment portfolio makes the highly risky stock markets available to risk averse investors. In times of economic recession, such a strategy does not lead to significant losses in the portfolio, which is an answer to the criticism of this approach by the followers of the Prospect Theory and Narrow Diversification Theory.
Keywords: volatility, economic policy, international portfolio investment, risk aversion
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