International Risk Analysis Based on The Portfolio Diversification: The Case of Prague Stock Exchange

Stock exchanges are constantly prone to instability caused by asset bubbles. Risk level within the stock exchanges stands as the main concern for the financial in-vestors. Stock prices are influenced by the choices completed on the domestic and international environment. The study intends to measure the risk level of the Pra-gue Stock Exchange (PSE) from the internal risk perspectives. Portfolio diversi-fication formula has been implemented to obtain the risk level of the PSE from 2000 till 2017. Stock prices and the trade volume of the listed companies in the PSE were collected from the Thomson Reuters Eikon database. PSE has been considered as a portfolio based on the number of listed companies on the respec-tive years. The results confirm that financial investors in the PSE would be com-pensated for the risk exposure. Diversification risk and weighted average returns from 2000 till 2017 were almost moving identically. The results indicate that PSE was influenced from the last financial crises of 2008, confirmed from a decline in the weighted average returns and an increase in the diversification risk. The re-sults of the study stand in line with the theoretical paradigms that increase in the number of stocks that reduces the `diversification