Investment Decision for a Risk-Averse Investor : A Study of the Nordic Markets

Abstract: This paper investigates the investment decisions for a risk-averse investor. Today’s market offers a variety of different investment options, and it might be hard to filter out the good investments from the bad. This study aims to find the most attractive investments with regards to low volatility. Through the combination of two different assessment tools, Capital Asset Pricing model and GARCH (1,1) process, we will evaluate four different indices in the Nordic Market. The findings show that two of our four indices are less sensitive to market movements. Additional findings show that through a significant GARCH (1,1) process we can gather and analyze in-sample Conditional Volatility and predict a forecast of future Conditional Volatility. Through these findings we can make an investment decision on how to allocate our savings in indices that are less volatile than the market portfolio.