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A Portfolio Approach to a Cross-sectoral and Cross-National Investment Strategy in Transition Economies

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  • Buiter, Willem H.
  • Lago, Ricardo
  • Rey, Hélène

Abstract

This paper takes a systematic look at the portfolio choice problem faced by investment banks or funds investing in transition economies. We relate the performance of projects in the transition economies to the broader macroeconomic and international environment, which affect the project through its input-output structure and its financial balance sheet. Among the macroeconomic determinants of enterprise behaviour we consider are productivity growth, real wage growth, movements in the international terms of trade, shocks to the relative price of traded and non-traded goods, domestic and foreign interest rates, currency depreciation and the rate of inflation. We evaluate the attractiveness of alternative investment strategies and provisioning rules from the perspective of portfolio theory.

Suggested Citation

  • Buiter, Willem H. & Lago, Ricardo & Rey, Hélène, 1997. "A Portfolio Approach to a Cross-sectoral and Cross-National Investment Strategy in Transition Economies," CEPR Discussion Papers 1548, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:1548
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    References listed on IDEAS

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    1. Obstfeld, Maurice, 1994. "Risk-Taking, Global Diversification, and Growth," American Economic Review, American Economic Association, vol. 84(5), pages 1310-1329, December.
    2. Buiter, Willem H. & Lago, R. & Rey, H., 1997. "Enterprises in transition: macroeconomic influences on enterprise decision-making and performance," LSE Research Online Documents on Economics 20348, London School of Economics and Political Science, LSE Library.
    3. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, September.
    4. Hart, Oliver & Moore, John, 1995. "Debt and Seniority: An Analysis of the Role of Hard Claims in Constraining Management," American Economic Review, American Economic Association, vol. 85(3), pages 567-585, June.
    5. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
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    Citations

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    Cited by:

    1. Buiter, Willem H. & Lago, Ricardo & Rey, Hélène, 1997. "Enterprises in Transition: Macroeconomic Influences on Enterprise Decision-making and Performance," CEPR Discussion Papers 1601, C.E.P.R. Discussion Papers.
    2. French-German Economic Forum, 1999. "Reduction of Working Time," Working Papers 1999-13, CEPII research center.

    More about this item

    Keywords

    Enterprise Performance; Macroeconomic environment; Portfolio Choice; Provisioning; Transition Economies;

    JEL classification:

    • D20 - Microeconomics - - Production and Organizations - - - General
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • P27 - Economic Systems - - Socialist Systems and Transition Economies - - - Performance and Prospects

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