A new approach to analyzing volatility and risk in portfolio investments

Abstract

In this article volatility as a measure of risk is considered by the author as the main problem of modern portfolio theory and not as a risk in its traditional sense. The author proposes to introduce the concepts of volatility risk and risk of capital loss, as well as their interpretation in order to distinguish the situations in portfolio investment, when the risk in the form of volatility (standard deviation) according to Markowitz portfolio theory is implied and when there is a real threat of capital loss by the investor. The purpose of the study is to revise the existing concept of assessing the measure of risk in portfolio investment in the form of volatility. The subject of the study is the economic relations formed in the process of formation of investment portfolios and assessment of their risk in the securities market. The theoretical and methodological basis of the study are the concepts and approaches formulated by domestic and foreign authors dealing with formation and assessment of risk of portfolio investments, as well as historical-logical and economic-mathematical analysis of stock market volatility and investment portfolio to prove that volatility is not a risk of capital loss in its traditional sense. The result of the study is a revision of the provisions of modern portfolio theory, which consists in considering volatility as the main measure of risk in portfolio investment, as well as raising the issue of the need to develop conceptually different methods of risk assessment in the securities market. The results obtained by the author, the proposed evidence of the imperfection of modern portfolio theory in the form of risk assessment through volatility can be useful for further research in the field of development of other approaches to the calculation of risk component of investment portfolios in the stock market.