Determination of the risk-free rate of return on an investment efficiency based on the fractal markets hypothesis

Andrii  Kozlovsky; Daria  Bilenko; Serhii  Kozlovskyi; Ruslan  Lavrov; Oleh  Skydan; Natalya  Ivanyuta

doi:10.23762/FSO_VOL8_NO3_4

Published : 2020-09-29

Vol. 8 No. 3 (2020)

Determination of the risk-free rate of return on an investment efficiency based on the fractal markets hypothesis

Andrii Kozlovsky

https://orcid.org/0000-0001-9697-1511

Daria Bilenko

https://orcid.org/0000-0002-6220-8101

Serhii Kozlovskyi

https://orcid.org/0000-0003-0707-4996

Ruslan Lavrov

https://orcid.org/0000-0002-9655-4467

Oleh Skydan

https://orcid.org/0000-0003-4673-9620

Natalya Ivanyuta

https://orcid.org/0000-0001-9177-9280

DOI: https://doi.org/10.23762/FSO_VOL8_NO3_4

Abstract

In determining the economic efficiency of an investment project, the rationale and choice of the discount rate is the most difficult step. The methods of investment assessment are built on the rate of return used to discount future cash flows back to their present value. To increase the accuracy of calculations and reduce the subjective assessments of experts, statistical methods are used. The market process is known to be stochastic. Therefore, investors know that the application of statistical methods is not practical, and thus prefer to use their intuition and professional experience. The alternative group of methods such as the Fractal Markets Hypothesis is not widely used because it is difficult to carry out calculations according to the proposed formulas in practice. In this paper, the aim is to propose a method for determining the risk-free rate of return on an investment project based on the Fractal Markets Hypothesis for identifying long-term dependence and assessing the contribution to the total result of changes in inflation. The objective of the study is the determination of the risk-free rate of return on an investment project. The real risk-free rate is calculated as the existing inflation rate. The result of this paper is the definition of inflation boundaries for Poland, Ukraine and Russia, which may be used for determining the risk-free rate of return on an investment project.

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Kozlovsky, A. ., Bilenko, D. ., Kozlovskyi, S. ., Lavrov, R. ., Skydan, O. ., & Ivanyuta, N. . (2020). Determination of the risk-free rate of return on an investment efficiency based on the fractal markets hypothesis. Forum Scientiae Oeconomia, 8(3), 61–72. https://doi.org/10.23762/FSO_VOL8_NO3_4

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