Share Price Indices In ISRAEL and Abroad-The Relation Between Them and Investment Risks
Michal Zilberberg and Ilan Socianu
Abstract
The Research studies the statistical relations between Israel's equity market and equity markets abroad in the period from January 1999 to May 2006, as well as the relation between the developments of the shekel and other currencies against the dollar.
The main findings are:
The Tel Aviv 100 index rates of change were closer to changes in the share price indices in the industrialized countries than to those in the other emerging markets, but not as close as the markets in the industrialized countries were to each other.
Currencies can be divided into two main homogeneous groups according to their weekly changes vis-?-vis the dollar. One consists of European currencies, and the other consists mainly of south east Asian currencies, and the shekel is considered part of that group. This latter group of currencies shows relatively low volatility against the dollar.
The risk in share indices is on average four times as high as currency risk. Nevertheless, in the short run exchange rate fluctuations can affect the total yield for the Israeli investor even more significantly than can share price fluctuations.
The optimal equity portfolio for the Israeli investor was found to consist mainly of equities in emerging markets (89 percent) and the other 11 percent in the Tel Aviv market, and did not include investment in industrialized countries.
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