Other industry characteristics for forecasting the...

Other industry characteristics for forecasting the behavior of monetary benefits of investing

Inflation is the first, but not the only factor that determines the different investment attractiveness of industries during the business cycle change. D. Miles revealed that a high financial lever leads to an increase in nominal interest rates by an amount greater than the inflation rate in conditions of uncertainty for firms with "unearned" assets. This additional interest rate puts branches with high financial leverage in a more risky position, as a large percentage burden is expected for both current and future payments.

The third macrofactor affecting the sectoral choice is the exchange rate (exchange rate ) and the risks associated with the dynamics of currencies (primarily the dollar/euro). For local capital markets, this factor is significant for export or import-oriented industries. Analysts consider two types of "exchange risk":

1) operational risk. Many companies operate in more than one country. The costs and revenue collection rarely coincide in time and if still occur in different currencies, then there is a risk of additional volatility in operating profit;

2) The risk of conversion. Many companies have assets abroad (this can be both buildings and goods, financial assets). To fix financial results in the standard financial (accounting) statements, these assets must be converted into a single currency (for example, the ruble). Due to the fact that the exchange rate is not fixed, even if the actual value of the assets under consideration is unchanged, their estimates reflected in the reporting will differ in time.

An important industry parameter is the level of irreversibility of investments.

Irreversibility of investments is a specific industry feature that reflects the impossibility of withdrawing from an investment decision due to the uniqueness of assets, low liquidity in the market and low liquidation value. Analysis of the level of irreversibility of investment plays an important role in understanding the investment behavior of companies and individual investors on macroeconomic changes.

In empirical studies, industry differences in the reaction of companies' investments to macroeconomic uncertainty are noted. Thus, R. Goel and R. Ram (1994) according to the data of eight countries (France, Germany, Belgium, Japan, USA, Great Britain, Canada, Denmark) for the period 1981-1992. (R & D, where investments are more irreversible) and non-R & D. The resulting conclusion: 1) Investments in R & amp; ; D are more sensitive to inflation rates and to changes in inflation rates (these two factors determine the prices for input and output for a firm and the models are uncertainties) and 2) the amount of investment (more precisely, the ratio Ii/GDPi ) is negatively affected by inflation and interest rates. On the contrary, for the sector non-R & D , the uncertainty considered as inflation expectations is an insignificant factor.

In the United States, there is a classification of industries according to the level of irreversibility of investments and the "irreversibility index" is calculated. (irreversibility index).

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