VALUE PARADIGM OF INTERNATIONAL PORTFOLIO INVESTING
Abstract
The paper considers basic principles and provisions of value paradigm of international portfolio investing, reveals its main features. Its gnoseological status as a paradigm is argued. It completely corresponds with existing paradigm definition as such, i.e. the commonly accepted scientific achievement giving scientific community the model of setting and solving problems during specified period of time. Comparative analysis involving another dominating portfolio paradigm is carried out; points of their tangency are defined. Results of applying portfolio paradigm are more precise and objective since they ground on specific calculations. Estimates of value paradigm are more subjective, it is often used even without specific quantitative analysis. However, the case is opposite with the input data: it is objective in value paradigm but subjective if portfolio paradigm. Fama and French model is one of the most significant tangency points between paradigms since it technically is derived from portfolio paradigm but in terms of its content incorporates all provisions and principles of value paradigm. Main stages of value paradigm development and their key traits are defined. Interrelation between value paradigm provisions and fundamental analysis are stressed on. Fundamental analysis is the specific form of value paradigm provisions application implying selecting of mispriced securities using their fundamental characteristics. It allows defining intrinsic of internal value of securities. Market value of securities is expected to achieve their intrinsic value in the long-run thus making the value paradigm more long-term focused. Besides Fama and French model cash flow discounting model is among the most accepted fundamental analysis methods. Cross functional nature of value paradigm in terms of its implications in international and local markets is validated. Significant practical implication of value paradigm concerning differentiation between value stocks and growth stocks is pointed out. This in turn configures the approach to classify investment strategies into value stocks investing and growth stocks investing that is extremely widespread in practice nowadays.
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