I`m working on paper about Country risk and investment decisions, and I was wondering if anybody has an idea how to prove that investment decisions are influenced by country risk...I did`t succeed to carry out my own survey and now I`m trying another way to confirm the hypothesis that country risk has an impact on investment decision and that CRA is one of the important factors when it comes to foreign investment...thanks
Stacey Warren - Expert brainly.com
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could you tell us a little more about the specific meaning of influenced in "decision are influenced by country risk".
in the sense that most investors and MNC take into account the country risk when deciding where to invest, that is to perform some form of country risk analysis before investing, but even in the case when they have already invested in order to verify the state of the business environment. I know that this is logical ... but how to confirm it. Is one of the factors that influence CFOs and their decisions country risk? How much influence have country ratings by rating agencies when it comes to decisions of investors ... something like this...
Would a comparative look at risk premiums in different countries not work for this? Just calculate the Rm - Rf for each country that you are studying and then just compare it to a scale of countries sorted on level of perceived risk (eg.http://www.heritage.org/index/Ranking or http://www.doingbusiness.org/rankings )
Alternatively, you can follow what Prof. Damodaran does here:
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The finance models are built around the relation between risk –return so, if you are looking at the risk side of the ecuation in order to evaluate where to invest is an incomplete approach. Why do people would want to invest in Greece? Only because of the return involved.
Said that, i’m kind of confused with your work
1) Are you trying to prove that Country ratings,issued by rating companies, are good proxies of risk measurement?
2) Are you trying to prove that risk and return relation is kept under countries perspective.
3) Are you trying to prove that portfolio manager and CFO follow perception of risk.
1) Study of Correlations between rating and risk measured as point over default risk free entity.
2) search correlations of implied market growth (future approach, not historical) and Country risk.
3) Study of How investement portfolio with expositon for example in Greece,Ireland and Spain rearranges his portfolios with events that change the perception of risk