Building and testing a digital model for effective investment decisions to form strategies for development of economic entities

Abstract

Subject. Sanction restrictions sharply decreased possibilities to attract external borrowings and substantiated the expediency of internal investments. This necessitated software tools enabling calculations and investment decisions. The developed a digital model of ISPI (Information System Portfolio Investor) will help make smart investment decisions, including at the government level. Objectives. The study aims to build a digital model to identify the most attractive investment areas at the regional, country, and cross-country level. Methods. The ISPI model is based on the Markowitz portfolio theory, the Profitability-Risk Model (PRM), and optimization methods. For our calculations, we used yields on Major and Sector Indices of the UK, India, China, USA, France, South Africa for 2014–2021, in one-month increments. Results. Using the developed ISPI model, we constructed scatter plots of leading stock market indices and identified the leading sectors of national economies of the studied countries and the most attractive investment areas. We solved the problem of finding a global optimum for the studied countries, differentiated the leading economic sectors by the level of investment risk, determined that an international portfolio is the most preferable for investment. Conclusions. Our ISPI model helps investors identify a region or country for smart investments. The model enables to determine industries in which investing is most justified within the nearest investment horizon. The model also helps identify the most appropriate financial instruments for investing in individual countries.