Identifying the risk-return tradeoff and exploring the dynamic risk exposure of country portfolio of the FSU's oil economies
Country risk not only reflects the overall risk of a given economy but also offers other more comprehensive risk information for stakeholders' decision-making. Different from previous studies focusing on oil import portfolio risk, this paper expands the scope of risk exposure from the micro risk of import portfolio to the macro risk of country portfolio, and puts forward a two-step framework to analyze the risk exposure when importing oil from the FSU region. Firstly, the paper analyzes the risk-return tradeoff of the FSU compared with the Middle East. Secondly, the country portfolio perspective is used from a macro risk perspective, and then an extension of the Value-at-Risk model which is incorporated time-varying conditional volatility mode is adopted to describe the dynamic risk of country portfolio. Empirical results show that increasing energy imports from the FSU is an effective way for China to balance risk from the high import dependence on the Middle East, but China faces more significant risk exposure of country portfolio comprised of FSU's oil economies than EU does.
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