Introduction
In this increasingly globalising and volatile financial markets, the import of portfolio diversification in investment planning cannot be overemphasised. We all know the old adage that says: “do not put all your eggs in one basket”.
In the past 12 months, the world’s stock market has experienced a particularly high degree of volatility that has never been seen in recent years. “On Monday 24 August 2015, about £74billion was wiped off the value of Wall Street and FTSE 100, and the Down Jones Industrial Average lost more than 1000 points at one stage on that day” (Allen, 2015).
The graph below shows how volatile the world’s stock market has been over the last year using the volatility index. Koesterich (2015) explains in the graph that higher index indicates that investors perceive the stock market to be riskier. The graph shows the volatility index between January 2014 and March 2015. Many investors who have a greater proportion of their investment portfolio exposed to stock market would have seen the value of their portfolio reduced significantly as a result.
This article will consider the global issues that has led to stock market volatility in the past year. It will look at how these issues developed, its effect on the equity and global economy and how they interrelate with each other. It considers how investors can benefit by selecting and allocating assets alternative to equity in their investment portfolio. This would help counteract the effects of the
Advisors and investors would do well to pay as much attention to the expected volatility of any portfolio or investment as they do to anticipated returns. Moreover, all things being equal, a new investment should only be added to a portfolio when it either reduces the expected risk for a targeted level of returns, or when it boosts expected portfolio returns without adding additional risk, as measured by the expected standard deviation of those returns. Lesson 2: Don’t assume bonds or international stocks offer adequate portfolio diversification. As the world’s financial markets become more closely correlated, bonds and foreign stocks may not provide adequate portfolio diversification. Instead, advisors may want to recommend that suitable investors add modest exposure to nontraditional investments such as hedge funds, private equity and real assets. Such exposure may bolster portfolio returns, while reducing overall risk, depending on how it is structured. Lesson 3: Be disciplined in adhering to asset allocation targets. The long-term benefits of portfolio diversification will only be realized if investors are disciplined in adhering to asset allocation guidelines. For this reason, it is recommended that advisors regularly revisit portfolio allocations and rebalance
“The Benefits of diversification are clear. Portfolio theory has played a crucial role in explaining the relationship between risk and return where more than one investment is held. It also enables us to identify optimal and efficient portfolios.”
Many changes have transcribed in the global market since the years of 2008-2009, the years of what could be dubbed as the “Second Great Depression”. The changes made have been of significant impact as the market has had to accommodate or regulate a great quantity of systems that range from the advancement of technological platforms in the compartment of information technology to the increase in demand of less common forms of energy being established by major corporations such as Tesla’s Powerwall home batteries. The increase of applications via phones have even made it easy for investors, even novice investors, to buy shares in stock markets at an international scale with a push of a button, taking great advantage of what the globe offers in
Due to the turbulence of global economic crash, the high volatility appeared in Woolworth’s share price returns from January 2007 to June 2009, the return rate is floating widely. The most serious market crash happened on 9th September 2008 (-13.50%). During this period of time, the investors had a difficult time. By contrast, there is a low volatility clustering from Jan-11 to Jun-11
The stock market has seen a lot of fluctuation during the months of February, March, and beginning of April. This can be noted to the new President in office, Mr. Trump. He has spent a great amount of his life as a businessman, and many investors saw this as a positive omen as to what would happen to the stock market and their investments. In fact, right before the presidential election in November, stock prices and indexes plunged as uncertainty in whether he or Mrs. Clinton would take office in such a close presidential race. After the announcement that there was a projected win for Mr. Trump, these stock prices and indexes that recently plummeted, increase rapidly; even to a price higher than before the uncertainty of the
Investing in emerging markets offer tempting advantages to investors. The volatile economies of countries considered to be in this category have a potential for extraordinary returns. A caveat to investors considering opportunities in emerging markets are the presence of unstable governments, the chance of nationalization, poor property rights protection, and large swings in prices. Emerging markets are far from a sure thing. But, despite high individual risk, emerging markets can reduce portfolio risk. The volatile economies of these countries have such low correlations compared to the domestic market that they actually provide the greatest degree of diversification.
Investors often struggle to understand the complex dynamics driving prices higher or lower from day to day. Learning how these factors shape certain trends underpins the foundation of a well-constructed portfolio. By and large, this requires a diverse selection of selection of stocks and bonds in different industries and at varying levels of market capitalization.
Initially this rule became prominent in literature and widely accepted by both academics and practitioners. However, recent financial events such as the crisis which is said to be proceeded to the stock market crash and large movements in the asset prices in Japan and the United Sates, has lead to increased scrutiny on the impact of volatility in stock prices and its relationship and impact on
One of the main reasons for stock volatility is because the market is dominated by retail investors, who treat stock trading like gambling. FIS Group in a recent report named “What is really happening in China?” said that more than 90 percent of capital accounts are owned by retail
This paper examines the relationship between stock returns and volatility using symmetric and asymmetric models of the GARCH family. For testing this relationship a time series sample of FTSE100 price index starting from 1st January 1988 to 31st December 2014 was taken. For calculating the excess returns on the stock index the risk free rate used is 3 months UKGBILL corresponding to the same time span.
Few things, you might think, are as enduring as a national stock exchange. From pillared entrance to pulsating floor, they display an institutional solidarity that can surely defy forces for change. And yet most of the world’s bourses are now in turmoil, as they scrabble to be seen making alliances or mergers, to fend off electronic competitors, or simply to survive. Even New York, the biggest of the lot, is worried: while London, the biggest in Europe, seems to lurch from one misstep to another. (The Economist, 17th June 2000). These missteps have come about from a number of structural changes that have, and are still occurring within national, and global economic environments. A
Political factors and macroeconomic indicators have earned an ever-increasing academic and public attention in influencing the financial health of a country since last few decades. The stock market performance is not an exception. For instance, two major political events, the ‘9/11 attack on the USA’ of 2001 and the ‘Arab spring movement’ in 2011 had down-turned the stock market performance markedly, signalling the compelled importance of investigating the impact of political conditions on stock market activities.
IRACST – International Journal of Commerce, Business and Management (IJCBM), ISSN: 2319–2828 Vol. 2, No.1, February 2013 Rise of BRICS Economy and its Impact on Global Stock Markets Naganathan Venkatesh Research Scholar, NITTTR, Chennai, India Abstract The world is changing and becoming increasingly multipolar due to the emergence of China, India, Russia, Brazil and South Africa forming so called BRICS. The global influence of America is fading out due to the recent decline in their stock market and the emergence of other markets. The framework of the global economy has changed dramatically due to the collapse of Lehman Brothers in 2008.
“DOES FII’S INCREASES STOCK MARKET VOLATILITY” Section : A Semester : 2 Batch : 2008-2010 STUDENT NAMES & ROLL NO:
Volatility and uncertainty persists in the financial markets across the world. In this environment, each small and big event affects the markets. Therefore, it