chunk1

ABSTRACT. The efficient frontier (risk-return profile) signifies the minimum risk achieved through diversification, i.e., the systematic risk, which has to be taken for any value of the expected returns. Using the Modern Portfolio Theory (MPT) of mean variance optimization, we estimate and compare of different long-only sectorial portfolios. Based on a longitudinal monthly data of average stock returns, efficient frontiers are obtained solving multiple optimizations through quadratic programming in R-statistical computing tool. We find that all the sectorial portfolios of stocks follow MPT in general as the risk associated with it increases on increasing the expected rate of the return but the slope of the efficient frontier decreases. Different sectors behave differently when it comes to the risk-return relationship. On a broad basis, the efficient frontiers of each sector can be classified into three bands: Band 1 always lies on the left side of Band-2, and Band 2 in turn always lies on the left side of Band 3. Since, ideally all the sectors should have exhibited similar behavior, i.e., same expected returns for any given level of risk undertaken, therefore, either there is a persistence of information asymmetry or there exists investor’s bias towards certain sectors. pp. 108–126 
JEL Classification: G11

Keywords: risk-return, diversification and portfolio choice

D. TRIPATI RAO
This email address is being protected from spambots. You need JavaScript enabled to view it.
Indian Institute of Management Lucknow
JASDEEP MANDIA
Indian Institute of Management Lucknow
ABHISHEK ANAND
Indian Institute of Management Lucknow

Home | About Us | Sales | Author's Page | Journals | Abstracting & Indexing | Contributors | Books | Contact | Online Access

© 2009 Addleton Academic Publishers. All Rights Reserved.

 
Joomla templates by Joomlashine