Balkan Stock Exchanges – Consideration of the Length of the Estimation Window in Similar Markets

Katarzyna Kubiszewska, Marcin Potrykus
European Research Studies Journal, Volume XXIII, Issue 4, 1047-1067, 2020
DOI: 10.35808/ersj/1731


Purpose: We study if capital markets in the Balkan are closely and positively related in terms of rate of return, risk, efficiency, and maximum cumulative loss in relation to different lengths of the estimation window. Design/Methodology/Approach: The research was carried out for the period from 01/01/2017 to 31/12/2019 using portfolio analysis. It was divided into an estimation window (01/01/2019 to 31/12/2019) and another with observations from the remaining days. The results were compared with a naive strategy. Four-element portfolios, consisting of three investments in companies from a given stock exchange and one investment in gold as a haven, were created. After determining all possible combinations of portfolios for each stock exchange and for all lengths of estimation window, the obtained results for rate of return, risk, efficiency, for each length of estimation window were averaged and were subjected to correlation analysis. Findings: In Balkan capital markets, a change in the length of the estimation window (optimal length 120 observations) had the same impact on the results for investment portfolio risk, efficiency, and maximum cumulative loss, but not for the rate of return. Practical Implications: An investor from one of the Balkan countries using a strategy based on portfolio theory would not be able to gain a competitive advantage over another investor from this region if he built a portfolio based on the same number of observations from the past. The investor should construct an investment portfolio based on historical data from the previous six months. Longer estimation periods are not recommended, as the results for the studied portfolio were worse than a naive strategy. Originality/Value: The study concentrates on the unique region of Europe, which was the subject of system transformation latest therefore it should not be compared directly to the current achievements in the stock changes which tradition of operation is longer.

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