Dynamic portfolio analysis of world stock indexes

Abstract

The article provides quantitive evaluation of the world stock markets with the «Return-Risk» Model, which is based on the fundamental principles of the porfolio theory. The analysis undertaken is aimed at revealing the most attractive world stock markets in regard to shaping of the future investment policy in the short term as well as determining the countries which securities (stocks, bonds, financial derivatives, etc.) should be included into the extended diversified investment portfolio. In other words, the world stock markets under study are not only considered as the status displays of the national economies of the corresponding countries but also as the potential instruments for investment portfolios. The synthesized «Return-Risk» Model is applicable in investment practice. The model shows that the attempt of 1% increase in return leads to the increase of risk by 3%. The computing experiments to testify the proposed model on independent material (verification of the model with permanent structure based on sliding verification) proved its practical applicability for revealing the leading indexes and dynamics estimate of their return within the closest investment horizon, with the win-loss ratio accounting for over three to one (3,2:1). The average monthly return is 1,1% per tool.

Key words: expected return, risk, world stock indexes, porfolio theory, investment attractiveness evaluation, dynamic portfolio, moving verification.

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