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Optimal Portfolio Construction: Application of Sharpe's Single-Index Model on Dhaka Stock Exchange

JEMA: Jurnal Ilmiah Bidang Akuntansi dan Manajemen

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Title Optimal Portfolio Construction: Application of Sharpe's Single-Index Model on Dhaka Stock Exchange
 
Creator Mahmud, Imroz
 
Subject Single-Index Model; Sharpe; Optimal Portfolio; Dhaka Stock Exchange
 
Description This study aims to find whether Sharpe's single-index model of portfolio construction offers better investment alternatives to the investors of the Dhaka Stock Exchange (DSE). For this purpose, month-ended closing price data of 178 companies listed on the DSE, the prime bourse of Bangladesh, and the month-ended index value of DSEX have been used for the period starting from January 2013 to February 2018. The stocks selected for this study belong to 16 industrial sectors, and purposive sampling technique has been used to select these sectors. Sharpe's model formulates a unique cut-off rate and selects the stocks having an excess return-to-beta ratio above that rate. In this study, 54 stocks qualified to be a part of the optimal portfolio. Hence, the proportion of investment to be made on each of the stock is calculated according to the model. The study reveals that three industries occupy a hefty chunk (65.78%) of the proposed investment portfolio. The constructed portfolio offers a monthly return of 2.1489% and carries 1.9516% risk as measured by standard deviation. The beta of the optimal portfolio is only 0.124003. The constructed portfolio outperforms every individual stock as well as the market index in terms of offering the optimal risk-return combinations. Therefore, this five-and-a-half-decade-old model offers a great opportunity for Bangladeshi investors to optimize return and diversify risk in an efficient manner.
 
Publisher University of Islam Malang
 
Contributor —
 
Date 2019-03-19
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
Peer-reviewed Article
 
Format application/pdf
 
Identifier http://riset.unisma.ac.id/index.php/jema/article/view/1736
10.31106/jema.v16i1.1736
 
Source JEMA: Jurnal Ilmiah Bidang Akuntansi dan Manajemen; Vol 16, No 1 (2019): JEMA: Jurnal Ilmiah Bidang Akuntansi dan Manajemen; 60-92
2597-4017
1693-7864
10.31106/jema.v16i1
 
Language eng
 
Relation http://riset.unisma.ac.id/index.php/jema/article/view/1736/PDF
http://riset.unisma.ac.id/index.php/jema/article/downloadSuppFile/1736/97
http://riset.unisma.ac.id/index.php/jema/article/downloadSuppFile/1736/98
http://riset.unisma.ac.id/index.php/jema/article/downloadSuppFile/1736/99
http://riset.unisma.ac.id/index.php/jema/article/downloadSuppFile/1736/100
 
Rights Copyright (c) 2019 JEMA: Jurnal Ilmiah Bidang Akuntansi dan Manajemen
http://creativecommons.org/licenses/by/4.0