ASYMMETRY IN RISK AND RETURN FLUCTUATIONS AS A FACTOR DRIVING INTERNATIONAL PORTFOLIO INVESTMENTS IN CRISIS PERIODS

Анотація

The asymmetry between risk and return in developed, emerging and frontier market groups is discovered. Internal and structural asymmetry concepts are developed. A method of estimating structural asymmetry which comes down to calculating a standard deviation of marginal percentage returns in different market groups is developed. The higher the standard deviation the higher the structural asymmetry level is. Small standard deviations mean that the asymmetry level is relatively small. It is proved that structural asymmetry (symmetry) is a factor driving global portfolio flows in crisis periods as well as in periods of stability. Two patterns of structural asymmetry are identified. They are the crisis pattern and the stability pattern. Main features of these patterns are elaborated. The crisis pattern implies that in crisis periods relatively low levels of structural asymmetry bring about the increase in the share of developed markets in global portfolio liabilities while the share of emerging and frontier markets falls. The reverse is also true. The stability pattern implies that the share of developed markets decreases given relatively low structural asymmetry levels and vice versa. These patterns can be used to explain why in crisis periods the share of developed markets in global portfolio liabilities increases.

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