CLUSTER APPROACH TO GLOBAL IMBALANCES IN INTERNATIONAL PORTFOLIO FLOWS ANALYSIS

Abstract

Abstract. Empirical testing of some International Capital Assets Pricing Model theoretical
postulates has been carried out. The one tested is referred to the three fund theorem and implies
that all international portfolio investors should hold equal portfolios containing all stocks of the
world market proportionally to their world market capitalization. The hypothesis on the imbalances
between the mentioned indicators has been confirmed. The shares of the explored 71 markets
in the world market portfolio and in the global portfolio liabilities during the period between
2001 and 2012 have been calculated. These figures differ in favor of the first and in some years
they differ significantly. The uncovered imbalances support the fact that the explored markets in
particular and the world market as a whole are underinvested.
The special ratio calculation methodology has been developed. The ratio of a market foreign
overinvesting / underinvesting level is calculated as the difference between the relation of the actual
factor – the share in the global portfolio liabilities to the equilibrium factor – the share in
the world market capitalization and the unity. This ratio is better to be calculated as a percentage.
Its positive sign means that the market is overinvested and its negative sign tells us that the
market is underinvested.
The 9-cluster overinvesting / underinvesting level matrix is elaborated on the basis of markets
two-criteria clusterization and examined. The matrix analysis did not allow to support the
theoretical idea that the market dynamics were to tend to equilibrium and the arising imbalances
were to be self-liquidated. Instead different markets groupings show different dynamics
patterns, different imbalances behavior and different trends. The Ukrainian market as the underinvested
one has been explored.
Key words: international capital assets pricing model, market share in the world market
capitalization, market share in the global portfolio liabilities, three fund theorem, global portfolio
flows imbalances, ratio of a market foreign overinvesting / underinvesting level, cluster
analysis, 9-cluster matrix of markets foreign overinvesting / underinvesting level, linear trend,
polynomial trend.