13 Chapter-5

Chapter 5
Construction of Optimal Portfolio
The construction of optimal portfolios continues to be one of the key areas of present
financial research as it plays a crucial role in the process of the investment. First step in the
process of investment is to construct the optimal portfolio. Markowitz approach and the
Sharpe single index model are the prominent approaches to construct optimal portfolios. The
number of inputs and the computational complexity of quadratic optimization in Markowitz
approach are the problems that require a lot of time and energy. To overcome these problems,
Sharpe proposed a model that requires fewer inputs and computational simplicity. The most
important issue is whether the results of this simplified model are similar to those obtained
using Markowitz model. As reported in the chapter 4, some of the studies that were
conducted to compare the optimal portfolios using Markowitz and Sharpe single index
approaches have come to conflicting conclusions. While some of the studies have concluded
that there is difference in the characteristics of the portfolios constructed using Markowitz
and Sharpe models, others have concluded that there is no difference in the characteristics of
the portfolios.
This work attempts to construct the optimal portfolios by applying Markowitz and Sharpe
approaches, compare the characteristics of the portfolios constructed and investigate whether
there is any difference between the results of these two approaches.
5.1 Markowitz Mean-Variance Model
The Markowitz mean-variance model attempts to minimize risk for a given level of expected
return, or equivalently maximize portfolio expected return for a given amount of portfolio
risk. The Markowitz mean-variance portfolio optimization problem can be formulated in the
following matrix forms:
• Minimize portfolio risk for a specified portfolio expected return.
Minimize: w C w (5.1)
Subject to: r w = μ
е w = 1, w ≥ 0
• Maximize portfolio expected return for a specified portfolio risk.
Maximize: r w (5.2)
Subject to: w C w = σ
е w = 1 , w ≥ 0
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• Maximize the portfolio expected return and minimize the portfolio risk using a
specified risk aversion factor, i.e. maximize utility function.
Maximize: r w − A w C w (5.3)
Subject to: е w = 1, w ≥ 0
Where, μ and σ are specified portfolio expected return and risk, respectively.
w is a column vector of portfolio weights: w= [ w w …..….w ]T
C is the covariance matrix for the returns on the securities in the portfolio.
A is risk aversion factor.
r is a column vector of expected returns: r = [ r r …….….r ]T
е is a column vector with all elements equal to one: е = [ 1 1 ………...1 ]T
w C w is the variance of portfolio return.
r w is the expected return on the portfolio.
5.2 Sharpe Single Index Model
Sharpe single index model aims to simplify the Markowitz model and reduce the number of
inputs by abandoning the calculation of covariance of each security with the other securities
and substituting information on the relationship of each security to the market index. The
inputs required to construct the optimal portfolio using Sharpe single index model can be
provided by estimating the expected return for each security, the variance of return on each
security, the Beta for each security, and the variance of the market return. The Sharpe single
index model attempts to rank the securities which are candidates for investment based on a
single criterion. The ranking device is a single number that measures the desirability of
including a stock in the optimal portfolio. Based on Sharpe single index model, the
desirability of any stock is directly related to its excess return to Beta ratio. “The excess
return to Beta ratio measures the additional return on a security beyond that offered by risk-
free asset per unit of non-diversifiable risk.”1 The selection of securities depends on a unique
cutoff rate. Therefore, by ranking excess return to Beta ratios of securities (from highest to
lowest) and calculating cutoff rate the securities constituting the optimal portfolio can be
determined. All securities which have excess return to Beta ratio greater than cutoff rate will
be included in optimal portfolio.
1
Source: Elton et al. (2010), “Modern Portfolio Theory and Investment Analysis”, p. 181
87
5.3 Data
The data are collected for a period of 17 years from April 1995 to March 2012 from Prowess
database of Centre for Monitoring Indian Economy Private Limited (CMIE), version 4.1. We
divide the entire period into three sub-periods in order to analyse the behaviour of portfolios
constructed in different time frames. The first sub-period is from April 1995 to March 2002,
the second sub-period is from April 2001 to March 2008 and the last one is from April 2005
to March 2012. Each sub-period includes six construction and holding periods. For example
the first sub-period includes six construction periods which are one year (1995-1996), two
years (1995-1997), three years (1995-1998), four years (1995-1999), five years (1995-2000)
and six years (1995-2001). For each of these periods, the holding period is one year following
the construction period. The details of each sub-period are as follows:
Table 5.1 Details of study period from April 1995 to March 2012
1995-2002 2001-2008 2005-2012

construction holding construction holding construction holding
period period period period period period
1995-1996 1996-1997 2001-2002 2002-2003 2005-2006 2006-2007
1995-1997 1997-1998 2001-2003 2003-2004 2005-2007 2007-2008
1995-1998 1998-1999 2001-2004 2004-2005 2005-2008 2008-2009
1995-1999 1999-2000 2001-2005 2005-2006 2005-2009 2009-2010
1995-2000 2000-2001 2001-2006 2006-2007 2005-2010 2010-2011
1995-2001 2001-2002 2001-2007 2007-2008 2005-2011 2011-2012
The universe of investment for each sub-period consists of the components of CNX-200
index listed on the National Stock Exchange of India Limited (NSE) before the beginning
date of that sub-period. Therefore, the universe of investment includes 85, 130, 155 stocks in
the first, second and third sub-periods, respectively. In each sub-period, four samples are
drawn with sample sizes of 10, 30, 50, and 70, applying simple random sampling selection
technique from the universe of investment of that sub-period. Simple random sampling is
done through Stat Trek’s random number generator using a statistical algorithm to produce
random numbers.2 The stocks selected in each sub-period are given in the following tables:
2
Source: Stat Trek, http://stattrek.com/statistics/random-number-generator.aspx (accessed on 21.09.2012)
88
Table 5.2 Stocks selected for the first sub-period (1995-2002)
Sample size
Stocks included in the sample
(universe of stocks)
BAJAJHLDNG,COLPAL,GUJFLUORO,INDHOTEL,M&M,PIRHEALTH,SUNPHARMA,TATACH
10
EM,TATAGLOBAL,VIDEOIND
ABB,ACC,BHEL,BHUSANSTL,CENTURYTEX,CESC,CIPLA,CRISIL,CROMPGREAV,
GSKCONS,GLAXO,GRASIM,GSFC,HINDALCO,HINDUNILVR,ITC,INDIACEM,INFY,JISLJAL
30
EQS,JSWISPAT,KOTAKBANK,LICHSGFIN,MRF,RANBAXY,RAYMOND,RUCHISOYA,TATA
CHEM,TATAMOTORS,VOLTAS,ZEEL
ABB,ACC,ABIRLANUVO,AMBUJACEM,ASIANPAINT,BAJAJHLDNG,BPCL,BRITANNIA,CES
C,CIPLA,COLPAL,CROMPGREAV,DABUR,GLAXO,GESHIP,GUJFLUORO,GSFC,HEROMOTO
CO,HINDALCO,HINDPETRO,HINDUNILVR,HDFC,INDIACEM,INDHOTEL,INFY,IPCALAB,K
50
OTAKBANK,LICHSGFIN,LUPIN,MAX,MRF,ORIENTBANK,RANBAXY,RAYMOND,RELIANC
E,RELINFRA,RUCHISOYA,SESAGOA,SIEMENS,SAIL,STER,SUNPHARMA,TATACHEM,TAT
AGLOBAL,TATAMOTORS,TATAPOWER,TITAN,VIDEOIND,VOLTAS,ZEEL
ABB,AMBUJACEM,APOLLOTYRE,ASHOKLEY,ASIANPAINT,BAJAJHLDNG,BATAINDIA,BH
ARATFORG,BHEL,BPCL,BHUSANSTL,BOSCHLTD,BRITANNIA,CENTURYTEX,CESC,CHAM
BLFERT,CIPLA,COLPAL,CROMPGREAV,CUMMINSIND,DABUR,DRREDDY,FEDERALBNK,
GSKCONS,GRASIM,GESHIP,GUJFLUORO,GSFC,HEROMOTOCO,HINDALCO,HINDPETRO,HI
70 NDUNILVR,HDFC,ITC,IFCI,INDIACEM,INDHOTEL,INFY,IPCALAB,JISLJALEQS,JINDALSA
W,JSWISPAT,KOTAKBANK,LT,LICHSGFIN,LUPIN,MAX,MRF,ORIENTBANK,PIRHEALTH,R
ANBAXY,RAYMOND,RELIANCE,RELINFRA,RUCHISOYA,SESAGOA,SIEMENS,SAIL,STER,
SUNPHARMA,TATACHEM,TATAGLOBAL,TATAMOTORS,TATAPOWER,TATASTEEL,TITA
N,VIDEOIND,VOLTAS,WIPRO,ZEEL
Table 5.3 Stocks selected for the second sub-period (2001-2008)

Sample size
AUROPHARMA,CUMMINSIND,DRREDDY,ESSAROIL,GAIL,GRASIM,LT,RALLIS,SESAGOA,
10
TITAN
ABIRLANUVO,AMBUJACEM,AXISBANK,BAJAJHLDNG,BANKINDIA,CENTURYTEX,CESC,
COLPAL,DABUR,GUJFLUORO,INDIACEM,INDHOTEL,IPCALAB,JINDALSAW,KARURVYSY
30
A,LICHSGFIN,LUPIN,M&M,MARICO,ORIENTBANK,RALLIS,RELCAPITAL,RELIANCE,RELI
NFRA,SESAGOA,SRTRANSFIN,SUNPHARMA,THERMAX,VIJAYABANK,ZEEL
ACC,ADANIENT,AMBUJACEM,AMTEKAUTO,ASHOKLEY,ASIANPAINT,AUROPHARMA,B
ANKBARODA,BATAINDIA,BEML,BHEL,BPCL,BOSCHLTD,BRITANNIA,CESC,CIPLA,CRISIL
,ENGINERSIN,GAIL,GSKCONS,GLAXO,GESHIP,GMDCLTD,GSFC,HCLTECH,HEROMOTOCO
50
,HCC,HDFC,ITC,INDIACEM,INDHOTEL,INDUSINDBK,KTKBANK,MAX,MOTHERSUMI,MPH
ASIS,ONGC,RALLIS,RUCHISOYA,SESAGOA,SRTRANSFIN,SOUTHBANK,SBIN,SYNDIBANK
,TATACOMM,TATAGLOBAL,THERMAX,UNITECH,VIJAYABANK,VOLTAS
ABB,ACC,ADANIENT,APOLLOHOSP,APOLLOTYRE,ASHOKLEY,AUROPHARMA,AXISBAN
K,BANKBARODA,BATAINDIA,BEL,BHEL,BPCL,CADILAHC,CENTURYTEX,CHAMBLFERT,
CIPLA,COLPAL,CONCOR,CUMMINSIND,DABUR,DRREDDY,ENGINERSIN,EXIDEIND,GSKC
ONS,GLENMARK,GRASIM,GUJFLUORO,GMDCLTD,HAVELLS,HCLTECH,HDFCBANK,HER
70 OMOTOCO,HINDALCO,HCC,HINDUNILVR,ITC,IDBI,INFY,IVRCLINFRA,JINDALSAW,JIND
ALSTEL,KTKBANK,KOTAKBANK,LICHSGFIN,M&M,MARICO,MAX,MOTHERSUMI,MRF,O
NGC,PIRHEALTH,RANBAXY,RAYMOND,RELCAPITAL,RUCHISOYA,SCI,SIEMENS,SINTEX,
SBIN,SAIL,STERLINBIO,SYNDIBANK,TATACOMM,TATAPOWER,TATASTEEL,THERMAX,
VIJAYABANK,VOLTAS,ZEEL
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Table 5.4 Stocks selected for the third sub-period (2005-2012)
Sample size
ASHOKLEY,BANKINDIA,CONCOR,ESSAROIL,FEDERALBNK,GSFC,JINDALSAW,KOTAKB
10
ANK,MAX,TATACHEM
ADANIENT,ABIRLANUVO,BATAINDIA,BHELBHUSANSTL,CANBK,CENTURYTEX,ENGINE
RSIN,GRASIM,GUJFLUORO,GMDCLTD,HCLTECH,HINDALCO,HDFC,INDUSINDBK,IPCALA
30
B,IVRCLINFRA,JINDALSAW,KOTAKBANK,LICHSGFIN,MARUTI,MRF,PTC,RANBAXY,SCI,
TATAMOTORS,THERMAX,TITAN,VOLTAS,WIPRO
AMBUJACEM,ANDHRABANK,ASIANPAINT,BEML,BHEL,BHUSANSTL,CADILAHC,CESC,CI
PLA,COLPAL,CONCOR,DRREDDY,ESSAROIL,GSKCONS,GLAXO,HDFC,IFCI,INDIACEM,IN
DIABULLS,IOB,INFY,IPCALAB,IVRCLINFRA,JPASSOCIAT,KTKBANK,KOTAKBANK,LICHS
50
GFIN,LUPIN,MPHASIS,NTPC,ONGC,OPTOCIRCUI,OFSS,PANTALOONR,PIRHEALTH,PTC,R
ALLIS,RAYMOND,SESAGOA,SINTEX,SBIN,STERLINBIO,SYNDIBANK,TATACOMM,TCS,TA
TAMOTORS,TITAN,UNIONBANK,VIJAYABANK,WELCORP
ACC,ADANIENT,AMBUJACEM,ANDHRABANK,APOLLOHOSP,BAJAJHLDNG,BANKINDIA,
BEL,BPCL,BHARTIARTL,BHUSANSTL,BOSCHLTD,CADILAHC,CHAMBLFERT,CIPLA,COR
OMANDEL,CUMMINSIND,DHFL,DIVISLAB,ENGINERSIN,FEDERALBNK,GAIL,GSKCONS,G
LAXO,GLENMARK,GRASIM,GUJFLUORO,HAVELLS,HDFCBANK,HEXAWARE,HINDALCO,
70 HCC,HINDUNILVR,ICICIBANK,INDIABULLS,INDHOTEL,IOB,IGL,INFY,IPCALAB,IVRCLINF
RA,JISLJALEQS,JINDALSTEL,KTKBANK,KARURVYSYA,KOTAKBANK,MRF,NTPC,PETRO
NET,PIRHEALTH,PTC,PNB,RAJESHEXPO,RAYMOND,RELINFRA,RUCHISOYA,SIEMENS,SO
UTHBANK,STERLINBIO,STER,SUNPHARMA,TATACHEM,TCS,TATASTEEL,TITAN,UCOBA
NK,UNIONBANK,MCDOWELL-N,WIPRO,ZEEL
5.4 Methodology
In order to investigate how the Sharpe single index model performs relative to the Markowitz
model and whether the results of the Sharpe’s model are similar to those obtained using the
Markowitz’s model, we construct the optimal portfolios using Markowitz approach and
Sharpe single index model and compare the risk-return characteristics and the risk-adjusted
performance measures of the portfolios obtained using these approaches.
5.4.1 Construction of Optimal Portfolio Using Markowitz Approach
To construct optimal portfolios using Markowitz approach, in each sub-period, construction
periods are considered to calculate required inputs, namely, returns and standard deviations
and covariance matrices. Weekly returns of equity stocks are calculated. The twelve levels of
risk aversion are considered as follows:
A = {1, 1.25, 1.66, 2, 2.5, 3, 4, 5, 10, 50, 90, 100}
To construct optimal portfolio by the Markowitz approach, mathematically we maximize the
utility function by maximizing the portfolio expected return and minimizing the portfolio risk
at a specified level of risk aversion. The utility function is expressed as follows:
1
U = E(R ) − A σ (5.4)
2
90
Where, U is utility function, E(R ) and σ are expected return and variance of the portfolio,
respectively, and “A” is risk aversion factor.3 The matrix form of the utility maximization
problem is equation 5.3. As can be seen from equation 5.3, the utility maximization problem
is subjected to two constraints. The first constraint requires that the weights of securities in the
portfolio sum to one and the second constraint requires that the weights of securities in the
portfolio should not be negative; it implies that short sales is not allowed. In order to solve
equation 5.3 which is quadratic programming problem, MATLAB software version 7 is used.
The inputs required to solve this quadratic maximization problem are calculated as follows:
$
r = [( 1 + R )( 1 + R ) … . . (1 + R " )]% − 1 (5.5)
r is geometric mean weekly returns of security i in each construction period
N is total number of weekly equity returns in each construction period
R " is weekly return of security i in the Nth week. , computed as
(&'() *&'(+ )
R " = (5.6)
&'(+
ACP. is adjusted closing price of equity i in the current week ( Nth week).
ACP is adjusted closing price of equity i in the preceding week (N-1th week).

3
4( R − R " ) (5.7)
σ = /"0 ∗ ∑"
3 " = / 0 ∗ ∑"
R 4 R (5.8)
"

3 3
4(R − R " )8R 7 − R 7" 9 (5.9)
σ7 = /"0 ∗ ∑"
In the above equations, at the first week n=1, at the second week n=2 , and at the Nth week
n=N.
σ is variance of equity i in each construction period
σ7 is covariance of security i with security j in each construction period
By applying the Markowitz approach, in each sub-period, two hundred eighty eight portfolios
are constructed with four samples of stocks, six construction periods and twelve levels of risk
aversion (4 x 6 x 12 = 288), therefore in total eight hundred sixty four portfolios are
constructed (3 x 288 = 864).
3
Bodie et al. (2008, p. 173) opine “the factor of is a scaling convention for simplifying calculations. It has no

economic significance, and we could eliminate it simply by defining a “new” A with half the value of the A
used here”
91
5.4.2 Construction of Optimal Portfolio Using Sharpe Single Index Model
To construct optimal portfolios using Sharpe single index model, the required inputs are
returns, standard deviations, Betas and market variance. Same as Markowitz model in each
sub-period, construction periods are considered to calculate the required inputs. The CNX
Nifty index is considered as a market proxy and weekly returns of equity stocks and market
index are calculated. The weighted average yields of Government of India (GOI) securities
are considered as risk free rate of returns. There is no corresponding risk aversion factor in
the Sharpe model as the optimum portfolio is not based on the utility function. The
construction of optimal portfolios using Sharpe single index model involves following steps:
The first step is calculation of excess return to Beta ratio for all stocks in each sample. This
ratio measures the desirability of including a stock in the optimal portfolio. Then the stocks
are sorted from highest to lowest based on this ratio. Mathematically,
(;< *;= )
Excess return to Beta ratio = (5.10)
><
where, r is calculated from equation 5.5, r? is the geometric mean weekly risk-free returns in
each construction period. Beta is computed using the following formula:
∑% 3 3
BD$(A<B *A<% )(ACB *AC% )
β = %
∑BD$( ACB *A 3 C% ) E
(5.11)
where, β is the measure of the sensitivity of the return of security i to the market return, N is
total number of weekly equity returns or weekly market returns in each construction period,
3 " is
R F is weekly market return and R F" is weekly return of market in the Nth week. R
3 GH is calculated as follows:
calculated from equation 5.9 and R
3 F" = / 0 ∗ ∑"
R 4 R F (5.12)
"
The second step is finding the cutoff rate (C*) from a series of Ci values. The optimal
portfolio consists of investing in all stocks which have excess return to Beta ratio greater than
a particular cutoff rate (C*). The value of cutoff rate is computed from the characteristics of
all of the securities that belong to the optimal portfolio (Fischer and Jordan, 2009, pp.610-
611). Mathematically Ci is calculated as follows:
(JK LJ= )MK
IEC ∑<KD$
NE
C =
OK
ME
(5.13)
K
PIEC ∑<KD$ E
NOK
Where, σF is variance of the market index.

σQ7 is unsystematic risk of equity.
92
Unsystematic risk = total variance of equity return – systematic risk
σQ7 = σ7 − β7 σF (5.14)
The cutoff rate, C*, is determined when all securities used in the calculation of Ci have excess
return to Beta ratio above Ci and all securities not used to calculate Ci have excess return to
Beta ratio below Ci (Fischer and Jordan, 2009, p.612).
Once the securities that are included in the optimal portfolio are determined, the percentage
invested in each security must be calculated. Mathematically the percentage invested in each
security is calculated as follows:
R
w = ∑% < (5.15)
KD$ RK
where, N is number of included securities in optimal portfolio and Z is calculated as follows:

>< ;< *;=
Z = ( − C∗) (5.16)
IEO< ><
The equation 5.16 determines the relative investment in each security and the equation 5.15
simply scales the weights on each security so that they sum to one to ensure full investment
(Fischer and Jordan, 2009, p. 614).
The same samples and construction periods are used to construct the optimal portfolios by
applying the Sharpe single index model. Therefore, twenty four portfolios in each sub-period
and seventy two portfolios in total are constructed.
5.4.3 Portfolio Performance Evaluation
To compare the portfolios constructed using the Markowitz and Sharpe single index models,
some well-established risk-adjusted performance measures, namely, Sharpe ratio, Treynor
ratio, Jensen measure, Fama measure and Modigliani-Modigliani measure (M2 measure), are
used to evaluate portfolio performances one year following their construction.
5.4.3.1 Sharpe Ratio
The reward to variability ratio developed by Sharpe (1966) is defined as Sharpe ratio (SR).
This is obtained by deducting the risk free rate from the portfolio return and dividing the
result by the standard deviation of portfolio as shown below:
(A+ *;= )
RVAR = I+
(5.17)
where, RVAR is reward to variability ratio of the portfolio or Sharpe ratio (SR).
R is portfolio return and is calculated as follows:
R = ∑4 w r (5.18)
where, n is total number of securities in the portfolio.
93
σ is standard deviation of portfolio and is calculated as follows:
$
σ = 8∑4 ∑74 w w7 σ7 9 E (5.19)
w and w7 are weights of securities i and j in the portfolio.
The benchmark is the return of market in excess of the risk free rate per unit of risk of the
market as shown below:
(;C *;= )
RVAR F = IC
(5.20)
where, RVAR F is the reward to variability ratio of the market, rF is geometric mean weekly
returns of the market, and σF is standard deviation of weekly return of the market.
When reward to variability ratio of the portfolio is greater than that of the market, then
portfolio performance outperforms the market.
5.4.3.2 Treynor Ratio
The reward to volatility ratio introduced by Treynor (1965) is known as Treynor ratio. This is
obtained by the ratio of portfolio return in excess of the risk free rate, as a measure of reward,
to the systematic risk of portfolio, as a measure of volatility.
(A+ *;= )
RVOL = >+
(5.21)
where, RVOL is reward to volatility ratio of the portfolio.

β is portfolio Beta and calculated as follow:
β = ∑4 w β (5.22)
where, n is total number of securities in the portfolio.
The greater the Treynor ratio, the higher the ranking of the portfolio will be. From the
indifference curve point of view, for risk-averse investors with greater Treynor ratio, the
higher indifference curves are obtained and therefore, the greater the utility is achieved.
The benchmark is the excess return of market over the risk free return.
RVOLF = (rF − r? ) (5.23)
When reward to volatility ratio of the portfolio is more than that of the market, it shows
superiority of the portfolio performance.
5.4.3.3 Jensen Measure
Jensen (1968) introduced a measure to evaluate risk-adjusted portfolio performance, namely
Jensen’s Alpha which measures the positive or negative abnormal return of the portfolio
relative to the return predicted by the CAPM. Alpha represents the difference between the
portfolio return and the return predicted by the CAPM adjusted for the systematic risk of
portfolio(β ). The Jensen measure is given by:
94
α = R − EAR (5.24)
where,
EAR = r? + ( rF − r? )β (5.25)
EAR is equilibrium average return of the portfolio.
The difference between equilibrium average return and portfolio return, namely, Alpha
indicates superior or inferior performance of the portfolio.
Positive Alpha shows the portfolio outperforms the benchmark, however negative Alpha
indicates the portfolio underperforms the benchmark.
5.4.3.4 Fama Measure
Fama (1972) developed an analytical method that analyses whether the portfolio is offering
the benefits of diversification, market timing and selectivity of securities to the investors. He
elaborated portfolio performance by decomposition of portfolio return to four components as
follows:
• Risk free return (r? )
• The part of portfolio returns which is due to predictions of overall market price
movements. A portfolio manager, who applies the market timing strategy, constructs
the portfolio based on relatively high Beta in the bullish market and relatively low
Beta in the bearish market. By this strategy, investors will be benefited in both
market rise and fall situations. This part of portfolio return, which is due to market
timing, is compensation for systematic risk and is known as the risk premium. It is
calculated as follows:
Risk premium = β (rF − r? ) (5.26)
• Sometimes the managers have to discard some diversifications, which will incur
some costs. These costs can be shown in the form of additional portfolio risk. An
additional return is required to compensate this additional risk. Compensation for
inadequate diversification is calculated as follows:
I+
(rF − r? ) ∗ ( − β ) (5.27)
IX
• The ability of portfolio manager to select undervalued securities may induce higher
return. The portion of portfolio return due to selectivity is calculated by deducting all
above components from portfolio return.
I+
Net portfolio return due to selectivity = (R − r? ) − [(I ) ∗ (rF − r? )] (5.28)
X
95
Here the positive value indicates that portfolio offers the advantage of proper
selectivity of securities to the investor.
5.4.3.5 M2 Measure
Modigliani and Modigliani (1997) developed the Modigliani Risk-Adjusted Performance
(RAP) measure or M2 measure. They showed that the portfolio and its benchmark (market
portfolio) must have the same risk to be compared in terms of basis points of risk-adjusted
performance. They proposed to lever or de-lever a portfolio, that is, shift it up or down the
capital market line so that portfolio standard deviation is identical to that of the market
portfolio and presented the resulting risk-adjusted return as the ranking variable. This
procedure produces the same ranking as obtained by applying the Sharpe Ratio. But
according to Modigliani and Modigliani this measure is easier to understand by the average
investor than the Sharpe ratio. M2 measure is calculated as follows:
I
RAP = YZ IC [ ∗ 8R − r? 9\ + r? (5.29)
+
The relationship between SR and RAP can be shown as follow:

RAP = 8 SR ∗ σF 9 + r? (5.30)
The advantage of RAP is that it can be directly compared to the market portfolio return. The
higher value of RAP shows the superiority of the portfolio performance.
5.4.4 Statistical Tests
As discussed in studies such as Kallberg and Ziemba (1983), Weil (1989) and Bodie et al
(2008) typical risk aversion coefficients range between 2.0 and 4.0. So, among portfolios
constructed using Markowitz approach, portfolios obtained at the three levels of risk
aversions, namely, 2, 3, and 4 are considered and compared to those constructed using Sharpe
approach. Therefore, in each sub-period, seventy two portfolios constructed using Markowitz
approach, are compared with twenty four portfolios constructed using Sharpe single index
model. Two-tailed independent samples t-test is used on the values of portfolio returns,
portfolio standard deviations, portfolio Betas and all the risk-adjusted portfolio performance
measures one year following their construction. It is hypothesised that there is no difference
between performance of constructed portfolios using Markowitz and Sharpe approaches.
Before applying t- test, equality or inequality of variances has been determined using F-test.
When the equality or inequality of variance is determined, the appropriate t-test is
conducted.4
4
According to the equality or inequality of variances of series, t-test two-sample assuming equal variances or t-
test two-sample assuming unequal variances are conducted, respectively.
96
5.5 Results and Discussions
In this section, we discuss the results and findings of research. This gives the descriptive
statistics, results of portfolios constructed using Markowitz approach, results of portfolios
constructed using Sharpe approach and comparison of Markowitz and Sharpe approaches.
5.5.1 Descriptive Statistics
Table 5.5 presents the descriptive statistics of weekly returns of the components of CNX-200
index for the entire period. In addition, at the end of Table 5.5, the descriptive statistics of
weekly returns of CNX NIFTY index (market index) is shown. Out of two hundred, 191
stocks (95.5 percent) have positive mean returns. Jubilant Foodworks Ltd. reports the highest
return. It was listed on the NSE on February 2010; therefore it is not included in the universe
of investment of any sub period. Next to Jubilant Foodworks Ltd., Jindal Steel & Power Ltd.
shows the highest return. It was listed on the NSE on December 1999; therefore, it is included
in the universe of investment in the second and third sub-periods. Videocon Industries Ltd.
reports the highest standard deviation with a relatively higher return. Likewise, it shows the
highest range. Sixty four percent of stocks show higher and sharper peak and fatter tails
compared to normal distribution as the kurtosis values exceed three. Higher kurtosis means
the return distribution is more clustered around the mean compared to normal distribution;
therefore, there is lesser risk of extreme outcomes and relatively lower standard deviation.
Out of two hundred, nineteen stocks (9.5 percent) and market index show the evidence of
negative skewness meaning that the left tail of the return distribution is longer than the right.
Negatively skewed return distribution indicates that there are frequent small gains and a few
extreme losses.
Table 5.5 Descriptive statistics of CNX-NIFTY index and components of CNX-200 for the
entire period (1995-2012)
Standard
Symbol Mean Kurtosis Skewness Range Minimum Maximum Count
Deviation
ABB 0.0039 0.0537 2.7576 0.3048 0.5099 -0.2274 0.2825 888
ABIRLANUVO 0.0039 0.0699 11.0412 -0.0111 1.0213 -0.6330 0.3883 888
ACC 0.0039 0.0594 1.6720 0.2699 0.4555 -0.2096 0.2459 888
ADANIENT 0.0083 0.0913 20.6164 2.6287 1.2830 -0.3814 0.9016 875
ADANIPORTS 0.0011 0.0730 1.3889 0.3058 0.4630 -0.2054 0.2576 226
ADANIPOWER -0.0020 0.0465 7.0899 1.2859 0.3700 -0.1214 0.2486 136
ALBK 0.0081 0.0652 3.2047 0.6269 0.5720 -0.2367 0.3353 487
AMBUJACEM 0.0039 0.0512 4.1962 0.4555 0.5670 -0.2095 0.3575 888
AMTEKAUTO 0.0060 0.0758 5.1373 1.1154 0.7797 -0.3330 0.4467 860
ANDHRABANK 0.0063 0.0611 2.9550 0.4972 0.5830 -0.2742 0.3087 573
APOLLOHOSP 0.0068 0.0736 9.6531 1.6915 0.8816 -0.2993 0.5823 879
97
Standard
Deviation
APOLLOTYRE 0.0046 0.0718 2.5733 0.7210 0.6076 -0.2582 0.3494 888
ASHOKLEY 0.0039 0.0691 3.3932 0.6896 0.7053 -0.2845 0.4208 888
ASIANPAINT 0.0046 0.0398 3.2981 0.5492 0.3990 -0.1585 0.2405 888
AUROPHARMA 0.0072 0.0821 3.6938 0.4884 0.8565 -0.4554 0.4011 843
AXISBANK 0.0084 0.0684 4.0113 0.7333 0.6850 -0.2132 0.4718 695
BAJAJ-AUTO 0.0108 0.0625 2.6346 -0.0239 0.4908 -0.2471 0.2437 200
BAJAJFINSV 0.0034 0.0846 5.4439 -0.1215 0.7909 -0.4416 0.3494 200
BAJAJHLDNG 0.0023 0.0553 15.7379 -1.1445 0.8475 -0.5878 0.2598 888
BANKBARODA 0.0050 0.0695 2.2149 0.5230 0.6059 -0.2754 0.3305 787
BANKINDIA 0.0046 0.0716 2.1339 0.5684 0.6088 -0.2575 0.3514 777
BATAINDIA 0.0046 0.0691 2.1230 0.5001 0.5989 -0.3315 0.2673 888
BEL 0.0071 0.0810 5.1000 1.1111 0.7594 -0.2523 0.5070 776
BEML 0.0048 0.0858 7.7787 1.4569 1.0334 -0.3478 0.6856 887
BHARATFORG 0.0050 0.0663 2.7090 0.6815 0.6132 -0.2664 0.3469 888
BHARTIARTL 0.0066 0.0525 1.6582 0.2196 0.4282 -0.2110 0.2172 527
BHEL 0.0054 0.0603 1.7561 -0.0707 0.4742 -0.2750 0.1992 886
BHUSANSTL 0.0049 0.0820 6.2607 1.1368 0.9026 -0.2632 0.6395 829
BIOCON 0.0010 0.0538 3.6805 0.5082 0.4773 -0.2139 0.2634 416
BOSCHLTD 0.0039 0.0424 4.9340 0.7248 0.4530 -0.1542 0.2988 886
BPCL 0.0039 0.0646 3.4539 0.5574 0.5867 -0.2406 0.3461 888
BRITANNIA 0.0042 0.0437 3.8241 0.5992 0.4475 -0.2138 0.2336 883
CADILAHC 0.0059 0.0483 5.0896 1.2210 0.4325 -0.1271 0.3053 622
CAIRN 0.0048 0.0539 1.7981 -0.2294 0.4027 -0.2330 0.1697 272
CANBK 0.0067 0.0635 1.1679 0.1137 0.5308 -0.2478 0.2829 483
CASTROL 0.0025 0.0430 1.8706 0.3114 0.3647 -0.1661 0.1986 664
CENTRALBK 0.0023 0.0689 2.9194 0.6570 0.5803 -0.2205 0.3598 240
CENTURYTEX 0.0035 0.0808 4.0514 0.8300 0.7877 -0.3140 0.4737 888
CESC 0.0034 0.0790 6.0033 1.3057 0.9452 -0.3380 0.6072 888
CHAMBLFERT 0.0032 0.0660 9.4471 0.9077 0.8833 -0.3608 0.5226 888
CIPLA 0.0048 0.0547 3.3608 0.4928 0.5337 -0.2112 0.3226 888
COALINDIA 0.0006 0.0409 0.2163 -0.0101 0.1966 -0.0886 0.1080 73
COLPAL 0.0020 0.0416 2.9566 0.6562 0.3808 -0.1411 0.2397 885
CONCOR 0.0046 0.0531 2.3521 0.3189 0.4193 -0.1820 0.2372 713
COREEDUTEC 0.0095 0.1045 11.6100 -0.2445 1.1802 -0.6583 0.5218 253
COROMANDEL 0.0067 0.0689 2.8614 0.6835 0.5966 -0.2496 0.3470 848
CRISIL 0.0065 0.0603 9.7081 1.5711 0.7362 -0.2796 0.4566 888
CROMPGREAV 0.0056 0.0787 5.3614 1.1099 0.7735 -0.2692 0.5042 884
CUMMINSIND 0.0043 0.0548 2.3479 0.5732 0.4264 -0.1890 0.2374 887
DABUR 0.0050 0.0547 3.9485 0.6958 0.5553 -0.2192 0.3361 888
DHFL 0.0067 0.0778 6.1033 1.1046 0.8569 -0.3007 0.5562 802
DISHTV 0.0012 0.0814 1.2996 0.2485 0.5710 -0.2998 0.2711 258
DIVISLAB 0.0098 0.0619 2.2107 0.6780 0.4677 -0.1925 0.2753 472
DLF -0.0005 0.0861 2.1081 0.2333 0.6613 -0.2991 0.3623 247
98
Standard
Deviation
DRREDDY 0.0049 0.0541 3.3047 0.4132 0.5168 -0.2078 0.3091 888
EDUCOMP 0.0082 0.0960 3.3192 0.7206 0.8288 -0.3470 0.4818 324
EMAMILTD 0.0054 0.0570 4.0212 1.1827 0.4803 -0.1778 0.3025 295
ENGINERSIN 0.0041 0.0828 8.2892 0.5997 1.0914 -0.5969 0.4945 686
ESSAROIL 0.0048 0.1017 51.9440 4.4186 1.7514 -0.2875 1.4639 869
EXIDEIND 0.0061 0.0617 3.3436 0.8739 0.5705 -0.2570 0.3135 880
FEDERALBNK 0.0044 0.0680 3.9144 0.7261 0.6569 -0.2961 0.3608 888
FINANTECH 0.0049 0.0893 13.1826 2.0384 1.0618 -0.3449 0.7169 353
FORTIS 0.0017 0.0615 3.5146 0.6231 0.4829 -0.2233 0.2596 255
GAIL 0.0037 0.0581 4.2453 0.4554 0.5864 -0.2751 0.3113 782
GESHIP 0.0045 0.0653 2.2769 0.5302 0.5844 -0.2366 0.3478 879
GLAXO 0.0036 0.0449 2.1372 0.2047 0.4246 -0.2197 0.2049 888
GLENMARK 0.0065 0.0708 4.5135 0.4121 0.7423 -0.3259 0.4164 633
GMDCLTD 0.0069 0.0844 4.0925 0.9984 0.7523 -0.2694 0.4829 742
GMRINFRA 0.0041 0.0787 6.4476 1.1656 0.7720 -0.2847 0.4873 292
GODREJCP 0.0078 0.0504 1.2964 0.5214 0.3279 -0.1507 0.1772 562
GRASIM 0.0035 0.0612 5.3860 0.7364 0.6954 -0.2468 0.4487 888
GSFC 0.0035 0.0705 2.6926 0.6089 0.6606 -0.3171 0.3435 888
GSKCONS 0.0032 0.0466 14.5202 -0.8838 0.6926 -0.4830 0.2096 888
GSPL 0.0040 0.0616 1.7148 0.4448 0.4507 -0.1965 0.2542 319
GUJFLUORO 0.0077 0.0818 3.4037 0.9755 0.7997 -0.3671 0.4326 888
GVKPIL 0.0021 0.0907 10.2235 1.4441 0.9959 -0.3383 0.6575 317
HAVELLS 0.0092 0.0653 8.0624 1.3794 0.7371 -0.2618 0.4753 575
HCC 0.0049 0.0876 5.8618 0.7046 1.1695 -0.5018 0.6676 879
HCLTECH 0.0031 0.0793 8.3515 0.5670 1.0313 -0.4061 0.6252 637
HDFC 0.0052 0.0508 2.5909 0.4828 0.4375 -0.1720 0.2655 888
HDFCBANK 0.0060 0.0529 7.0815 1.1696 0.6399 -0.1915 0.4484 876
HDIL 0.0003 0.1218 5.6903 1.0632 1.1124 -0.4331 0.6793 244
HEROMOTOCO 0.0065 0.0535 1.9467 0.4886 0.4351 -0.1592 0.2759 888
HEXAWARE 0.0070 0.0922 3.6247 0.7195 0.9338 -0.3749 0.5589 756
HINDALCO 0.0029 0.0619 5.0871 0.6551 0.7185 -0.3213 0.3972 888
HINDOILEXP 0.0059 0.0954 4.3903 1.3881 0.8646 -0.2894 0.5752 888
HINDPETRO 0.0025 0.0654 3.3572 0.5326 0.6104 -0.2930 0.3174 888
HINDUNILVR 0.0032 0.0440 2.7555 0.4518 0.4244 -0.1744 0.2500 888
IBREALEST -0.0013 0.0991 2.2454 0.2414 0.8235 -0.4080 0.4155 262
ICICIBANK 0.0064 0.0732 4.8789 0.8333 0.7383 -0.2790 0.4593 757
IDBI 0.0031 0.0732 5.5089 1.0346 0.7174 -0.2848 0.4326 862
IDEA 0.0026 0.0627 7.1491 -0.8608 0.5968 -0.4174 0.1794 264
IDFC 0.0043 0.0700 2.1706 0.3930 0.6071 -0.2917 0.3154 346
IFCI 0.0039 0.0918 10.3673 1.7142 1.0850 -0.3244 0.7606 888
IGL 0.0040 0.0522 2.6738 0.4156 0.4310 -0.1903 0.2408 431
INDHOTEL 0.0016 0.0521 3.5094 0.1132 0.5090 -0.2467 0.2623 888
INDIABULLS 0.0111 0.1053 7.5717 0.6394 1.2708 -0.5430 0.7279 392
99
Standard
Deviation
INDIACEM 0.0027 0.0753 3.6266 0.9428 0.6737 -0.2164 0.4573 885
INDIAINFO 0.0096 0.1110 6.4846 1.3698 1.0140 -0.3616 0.6523 358
INDIANB 0.0056 0.0666 1.9932 0.3530 0.4872 -0.1914 0.2958 265
INDUSINDBK 0.0056 0.0761 3.7461 0.9132 0.6995 -0.2273 0.4722 739
INFY 0.0087 0.0637 5.1301 0.1689 0.7167 -0.3822 0.3345 888
IOB 0.0061 0.0664 2.7359 0.1411 0.6075 -0.3299 0.2776 589
IPCALAB 0.0047 0.0663 4.6381 1.0625 0.5923 -0.1979 0.3945 888
IRB 0.0025 0.0737 1.7626 0.6304 0.5050 -0.2052 0.2999 213
ITC 0.0048 0.0493 7.1770 1.0691 0.5490 -0.1663 0.3827 888
IVRCLINFRA 0.0059 0.0996 8.2688 1.4217 1.0687 -0.4360 0.6326 651
JINDALSAW 0.0053 0.0947 5.6932 1.2282 1.0098 -0.3344 0.6754 888
JINDALSTEL 0.0115 0.0846 5.3737 1.1627 0.7891 -0.2766 0.5125 653
JISLJALEQS 0.0049 0.0958 15.5329 2.3413 1.1497 -0.3248 0.8249 833
JPASSOCIAT 0.0079 0.0819 1.4302 0.2185 0.6586 -0.3448 0.3138 406
JSWENERGY -0.0036 0.0585 2.0793 0.7100 0.3567 -0.1341 0.2226 116
JSWISPAT 0.0026 0.0985 4.1803 0.9655 1.0000 -0.5000 0.5000 869
JSWSTEEL 0.0049 0.0936 9.4419 1.7904 1.0591 -0.3333 0.7257 792
JUBLFOOD 0.0170 0.0677 0.5550 0.6714 0.3340 -0.1099 0.2241 111
KARURVYSYA 0.0048 0.0627 5.3092 0.9098 0.7363 -0.3484 0.3879 880
KOTAKBANK 0.0072 0.0869 5.8206 1.3077 0.7817 -0.3086 0.4731 888
KTKBANK 0.0064 0.0723 8.0985 1.6511 0.7567 -0.2025 0.5541 620
LICHSGFIN 0.0056 0.0664 3.4961 0.6656 0.5915 -0.2952 0.2963 888
LITL 0.0045 0.1108 3.5558 0.9758 0.8137 -0.3399 0.4738 278
LT 0.0048 0.0576 3.1999 0.4161 0.5470 -0.2318 0.3152 883
LUPIN 0.0053 0.0714 4.3532 0.9775 0.7017 -0.2635 0.4382 879
M&M 0.0052 0.0639 3.2371 0.0692 0.6486 -0.3472 0.3014 888
M&MFIN 0.0048 0.0538 1.1511 0.2820 0.3822 -0.1739 0.2084 315
MARICO 0.0054 0.0480 2.8606 0.7303 0.3935 -0.1561 0.2374 810
MARUTI 0.0060 0.0542 1.0702 -0.0243 0.3963 -0.1882 0.2081 455
MAX 0.0052 0.0866 17.2013 1.9252 1.4066 -0.4781 0.9285 886
MCDOWELL-N 0.0084 0.0791 5.2935 0.6500 0.8720 -0.4108 0.4611 548
MCLEODRUSS 0.0079 0.0790 1.7314 0.5831 0.5444 -0.2554 0.2889 348
MOTHERSUMI 0.0080 0.0689 3.3367 0.8583 0.6318 -0.2621 0.3697 809
MPHASIS 0.0090 0.0918 5.9478 1.2418 0.8526 -0.3184 0.5342 811
MRF 0.0042 0.0632 4.4321 1.1514 0.6031 -0.2016 0.4015 867
NCC 0.0044 0.0894 3.8265 0.8981 0.9036 -0.4066 0.4970 812
NHPC -0.0038 0.0339 1.5041 0.7336 0.2104 -0.0911 0.1193 134
NTPC 0.0028 0.0391 1.5001 0.1525 0.2867 -0.1318 0.1549 386
OFSS 0.0066 0.0632 4.5464 0.5258 0.6843 -0.2817 0.4026 509
OIL 0.0011 0.0284 -0.4057 -0.0059 0.1320 -0.0588 0.0733 130
ONGC 0.0036 0.0604 6.1561 0.9845 0.6238 -0.2030 0.4208 866
OPTOCIRCUI 0.0111 0.0780 8.7080 1.6379 0.8728 -0.2970 0.5758 448
ORIENTBANK 0.0035 0.0623 2.2178 0.4093 0.5904 -0.2697 0.3207 888
100
Standard
Deviation
ORISSAMINE 0.0026 0.0867 0.6255 0.9525 0.4267 -0.1529 0.2739 78
PANTALOONR 0.0103 0.0801 2.7347 0.9596 0.6654 -0.2308 0.4346 542
PETRONET 0.0078 0.0628 4.3998 0.7669 0.6094 -0.2618 0.3476 418
PFC 0.0037 0.0600 0.0285 -0.0670 0.3422 -0.1680 0.1742 266
PIPAVAVDOC 0.0049 0.0660 6.3839 -0.7722 0.5596 -0.3426 0.2170 129
PIRHEALTH 0.0037 0.0553 3.3782 0.3459 0.5500 -0.2597 0.2903 880
PNB 0.0081 0.0620 2.9522 0.5201 0.6020 -0.2825 0.3195 518
POWERGRID 0.0015 0.0481 2.8530 0.2343 0.3777 -0.2019 0.1758 234
PTC 0.0032 0.0677 4.7270 0.7275 0.6553 -0.2865 0.3687 416
PUNJLLOYD -0.0007 0.0824 1.9032 0.1268 0.6585 -0.2791 0.3795 325
RAJESHEXPO 0.0100 0.0919 4.8478 0.5105 0.9724 -0.5021 0.4702 546
RALLIS 0.0048 0.0752 3.2360 0.8704 0.6765 -0.2249 0.4516 859
RANBAXY 0.0034 0.0575 4.3392 0.1595 0.5717 -0.2751 0.2966 888
RAYMOND 0.0037 0.0723 7.8149 1.3736 0.8113 -0.2614 0.5499 888
RCOM -0.0012 0.0750 2.6725 0.1218 0.6459 -0.2874 0.3585 316
RECLTD 0.0049 0.0646 0.6910 0.1188 0.4262 -0.2219 0.2043 211
RELCAPITAL 0.0046 0.0823 4.5056 0.8191 0.7861 -0.2591 0.5270 888
RELIANCE 0.0045 0.0595 7.6801 1.1272 0.6525 -0.2231 0.4294 888
RELINFRA 0.0036 0.0658 3.3410 0.4048 0.6733 -0.3062 0.3671 888
RENUKA 0.0066 0.0891 1.4407 -0.0356 0.6471 -0.3681 0.2790 334
RPOWER -0.0009 0.0700 2.4216 0.4091 0.4962 -0.2186 0.2776 215
RUCHISOYA 0.0050 0.0785 8.1611 1.5152 0.8473 -0.2798 0.5674 888
SAIL 0.0041 0.0796 7.2442 1.4440 0.8962 -0.2618 0.6345 888
SBIN 0.0045 0.0580 3.0226 0.5912 0.5176 -0.1989 0.3186 888
SCI 0.0044 0.0766 4.4396 0.9698 0.7229 -0.2784 0.4444 846
SESAGOA 0.0058 0.0789 2.3818 0.6162 0.7913 -0.3281 0.4632 844
SIEMENS 0.0050 0.0611 2.8341 0.4127 0.5757 -0.2515 0.3241 888
SINTEX 0.0086 0.0806 3.9205 0.6265 0.7924 -0.3220 0.4703 680
SOUTHBANK 0.0063 0.0690 6.2072 1.4714 0.6521 -0.2255 0.4266 693
SRTRANSFIN 0.0097 0.0958 18.8297 1.8746 1.5238 -0.5238 1.0000 803
STAR 0.0020 0.0856 3.4928 0.7033 0.7785 -0.3325 0.4460 570
STER 0.0050 0.0854 18.9056 -1.4280 1.2816 -0.9208 0.3608 781
STERLINBIO 0.0044 0.0905 8.4313 1.4407 1.1343 -0.5167 0.6176 881
SUNPHARMA 0.0072 0.0573 6.3120 0.9300 0.6321 -0.2526 0.3795 888
SUNTV 0.0020 0.0656 3.5720 0.4410 0.5759 -0.2693 0.3066 309
SUZLON -0.0007 0.0929 7.2205 0.3974 1.0440 -0.4539 0.5900 336
SYNDIBANK 0.0054 0.0639 3.6047 0.2128 0.6474 -0.3424 0.3050 639
TATACHEM 0.0023 0.0590 2.6866 0.1168 0.5098 -0.2456 0.2642 888
TATACOMM 0.0027 0.0712 5.2227 0.6780 0.8171 -0.3477 0.4694 836
TATAGLOBAL 0.0028 0.0541 2.4688 0.5178 0.4638 -0.1800 0.2838 888
TATAMOTORS 0.0040 0.0659 2.2160 0.1066 0.6356 -0.3321 0.3035 888
TATAPOWER 0.0039 0.0567 4.3812 0.7950 0.6041 -0.1852 0.4190 888
TATASTEEL 0.0036 0.0654 2.0873 0.3279 0.6180 -0.2811 0.3369 888
101
Standard
Deviation
TCS 0.0050 0.0440 1.4031 -0.1829 0.3327 -0.2018 0.1309 396
TECHM 0.0040 0.0798 8.0579 1.2640 0.8293 -0.3651 0.4641 291
THERMAX 0.0045 0.0639 2.4376 0.4638 0.5771 -0.2532 0.3239 876
TITAN 0.0064 0.0719 1.2748 0.4733 0.5398 -0.2523 0.2874 888
UBL 0.0092 0.0742 4.1572 1.4260 0.5345 -0.1490 0.3855 191
UCOBANK 0.0053 0.0667 4.4314 0.8942 0.6036 -0.2174 0.3862 442
ULTRACEMCO 0.0057 0.0508 1.1009 0.1466 0.3541 -0.1640 0.1900 396
UNIONBANK 0.0075 0.0632 2.7026 -0.2145 0.5992 -0.3556 0.2437 496
UNIPHOS 0.0078 0.1328 37.1184 3.8772 2.1941 -0.6941 1.5000 788
UNITECH 0.0080 0.0893 6.1723 0.5760 1.1721 -0.6108 0.5613 888
VIDEOIND 0.0114 0.1901 190.934 10.3095 4.5548 -0.7270 3.8278 872
VIJAYABANK 0.0051 0.0638 2.8462 0.6054 0.5966 -0.2170 0.3796 585
VOLTAS 0.0053 0.0729 3.1486 0.8367 0.7217 -0.2826 0.4391 888
WELCORP 0.0046 0.0831 3.4163 0.1167 0.8001 -0.4418 0.3583 429
WIPRO 0.0086 0.0812 9.6736 1.0793 1.1090 -0.4800 0.6290 879
YESBANK 0.0080 0.0751 4.0185 -0.0789 0.7090 -0.3884 0.3206 350
ZEEL 0.0063 0.0836 2.3543 0.1541 0.7173 -0.3766 0.3408 888
CNX NIFTY 0.0025 0.0353 1.7192 -0.0615 0.3139 -0.1595 0.1544 888
Tables (5.6), (5.7) and (5.8) present the descriptive statistics of weekly returns of stocks
included in universe of investment for the first, second and third sub-periods, respectively. In
addition, the descriptive statistics of weekly returns of market index is also shown for the
corresponding sub-period.
It can be seen from Table 5.6 that out of eighty five, sixty stocks (70.59 percent) have
positive mean returns. Wipro Ltd. reports the highest return. Castrol India Ltd. shows the
lowest standard deviation, however, it has negative mean return. Videocon Industries Ltd.
reports the highest standard deviation with a relatively higher return. 56.47 percent of stocks
have the kurtosis values more than three. Out of eighty five, 81 stocks (95.29 percent) and
market index show the evidence of positive skewness meaning that the right tail of the return
distribution is longer than the left. Positively skewed return distribution indicates that there
are frequent small losses and a few extreme gains. It is clear from the Table 5.6 that market
index has the lowest range.
102
Table 5.6 Descriptive statistics of universe of investment for the first sub-period (1995-2002)
Standard
Deviation
ABB -0.0001 0.0543 2.0769 0.1735 0.4411 -0.2057 0.2354 366
ABIRLANUVO -0.0005 0.0784 14.3661 -0.2775 1.0134 -0.6330 0.3804 366
ACC 0.0020 0.0733 0.7405 0.4800 0.4555 -0.2096 0.2459 366
AMBUJACEM 0.0027 0.0570 1.6094 0.3845 0.4241 -0.1598 0.2643 366
APOLLOTYRE 0.0019 0.0823 2.5592 0.8191 0.5552 -0.2058 0.3494 366
ASHOKLEY 0.0014 0.0796 1.9608 0.5706 0.6209 -0.2845 0.3364 366
ASIANPAINT 0.0028 0.0447 3.5148 0.8857 0.3817 -0.1412 0.2405 366
BAJAJHLDNG 0.0013 0.0502 1.7414 0.4252 0.3762 -0.1464 0.2297 366
BATAINDIA -0.0001 0.0719 1.5206 0.6372 0.4839 -0.2165 0.2673 366
BEML 0.0007 0.1016 8.2978 1.8108 1.0334 -0.3478 0.6856 365
BHARATFORG 0.0024 0.0769 1.5490 0.8584 0.5172 -0.2365 0.2807 366
BHEL 0.0036 0.0699 1.4541 -0.0937 0.4742 -0.2750 0.1992 364
BHUSANSTL -0.0034 0.0829 2.8334 0.7825 0.6589 -0.2632 0.3957 366
BOSCHLTD -0.0014 0.0466 7.0443 1.1208 0.4530 -0.1542 0.2988 364
BPCL 0.0049 0.0729 3.7831 0.8206 0.5852 -0.2391 0.3461 366
BRITANNIA 0.0048 0.0532 2.7368 0.5264 0.4475 -0.2138 0.2336 361
CASTROL 0.0000 0.0444 1.8161 0.2107 0.3327 -0.1661 0.1666 366
CENTURYTEX -0.0020 0.0882 3.4164 0.8901 0.7877 -0.3140 0.4737 366
CESC -0.0046 0.0809 2.0372 1.0743 0.5343 -0.1999 0.3344 366
CHAMBLFERT -0.0014 0.0480 3.3745 0.6676 0.3896 -0.1571 0.2326 366
CIPLA 0.0068 0.0681 2.3698 0.5991 0.5337 -0.2112 0.3226 366
COLPAL -0.0018 0.0456 2.8889 0.6445 0.3808 -0.1411 0.2397 366
COROMANDEL 0.0029 0.0772 1.9736 0.8076 0.5006 -0.2000 0.3006 326
CRISIL 0.0045 0.0701 10.7802 1.8617 0.7362 -0.2796 0.4566 366
CROMPGREAV 0.0007 0.0931 4.3223 1.2145 0.7735 -0.2692 0.5042 362
CUMMINSIND 0.0015 0.0599 2.5499 0.7510 0.4264 -0.1890 0.2374 365
DABUR 0.0038 0.0636 3.7121 0.9503 0.5553 -0.2192 0.3361 366
DRREDDY 0.0073 0.0665 2.1907 0.5649 0.5168 -0.2078 0.3091 366
EXIDEIND 0.0019 0.0684 3.5129 0.9606 0.5705 -0.2570 0.3135 358
FEDERALBNK 0.0006 0.0803 4.2813 1.1085 0.6569 -0.2961 0.3608 366
GESHIP 0.0007 0.0631 1.9650 0.6843 0.4480 -0.1903 0.2577 360
GLAXO 0.0026 0.0526 0.8555 0.3191 0.3540 -0.1491 0.2049 366
GRASIM 0.0006 0.0745 4.8674 1.0994 0.6756 -0.2269 0.4487 366
GSFC -0.0028 0.0693 4.3942 1.3453 0.5471 -0.2036 0.3435 366
GSKCONS 0.0013 0.0548 17.2358 -1.4113 0.6926 -0.4830 0.2096 366
GUJFLUORO 0.0008 0.0843 3.0073 1.1666 0.6157 -0.2467 0.3690 366
HDFC 0.0046 0.0517 4.7797 1.1181 0.4251 -0.1596 0.2655 366
HEROMOTOCO 0.0094 0.0637 1.7175 0.5864 0.4351 -0.1592 0.2759 366
HINDALCO 0.0024 0.0591 6.1608 1.3526 0.4915 -0.1454 0.3460 366
HINDOILEXP 0.0046 0.0997 3.5736 1.2375 0.8646 -0.2894 0.5752 366
HINDPETRO 0.0033 0.0708 3.2329 0.9224 0.5159 -0.1985 0.3174 366
HINDUNILVR 0.0049 0.0478 4.0176 0.8668 0.4244 -0.1744 0.2500 366
103
Standard
Deviation
IFCI -0.0040 0.0723 8.7459 1.9018 0.6488 -0.2024 0.4464 366
INDHOTEL -0.0018 0.0529 3.3163 0.1311 0.4962 -0.2339 0.2623 366
INDIACEM -0.0002 0.0840 4.4460 1.3466 0.6734 -0.2161 0.4573 363
INFY 0.0147 0.0831 2.0499 0.2950 0.6243 -0.2898 0.3345 366
IPCALAB -0.0006 0.0780 2.8546 1.0615 0.5585 -0.1854 0.3731 366
ITC 0.0043 0.0621 5.7674 1.1848 0.5490 -0.1663 0.3827 366
JINDALSAW 0.0025 0.1190 4.6518 1.4824 0.9524 -0.2770 0.6754 366
JISLJALEQS -0.0015 0.1166 14.9576 2.6614 1.1170 -0.2921 0.8249 311
JSWISPAT -0.0043 0.1016 5.6420 0.9446 1.0000 -0.5000 0.5000 366
KOTAKBANK 0.0041 0.1082 5.0751 1.6780 0.7300 -0.2569 0.4731 366
LICHSGFIN 0.0024 0.0648 3.5761 0.4749 0.5696 -0.2952 0.2745 366
LT 0.0011 0.0620 2.6102 0.5455 0.5184 -0.2239 0.2944 366
LUPIN 0.0003 0.0920 2.9426 1.0777 0.7017 -0.2635 0.4382 357
M&M 0.0014 0.0718 2.3470 0.2576 0.5952 -0.3154 0.2798 366
MAX 0.0038 0.1054 17.9701 2.2710 1.4066 -0.4781 0.9285 364
MRF 0.0006 0.0667 4.3053 1.1588 0.5331 -0.2016 0.3315 345
ORIENTBANK 0.0004 0.0571 4.1709 0.6823 0.5219 -0.2013 0.3207 366
PIRHEALTH 0.0011 0.0604 3.9086 0.7681 0.5445 -0.2543 0.2903 358
RALLIS -0.0012 0.0812 2.2262 0.7265 0.5986 -0.2249 0.3737 337
RANBAXY 0.0046 0.0592 4.3427 0.4290 0.5585 -0.2751 0.2834 366
RAYMOND 0.0019 0.0808 2.9298 1.0070 0.5475 -0.1933 0.3543 366
RELCAPITAL 0.0013 0.0866 3.2526 1.0110 0.7083 -0.2504 0.4579 366
RELIANCE 0.0047 0.0707 6.9664 1.4284 0.6525 -0.2231 0.4294 366
RELINFRA 0.0028 0.0618 3.5659 0.6599 0.6064 -0.2843 0.3220 366
RUCHISOYA 0.0000 0.0755 5.9879 1.4287 0.6723 -0.1989 0.4734 366
SAIL -0.0019 0.0868 9.2015 1.9565 0.8066 -0.1721 0.6345 366
SBIN 0.0026 0.0640 2.5211 0.7120 0.4728 -0.1849 0.2878 366
SESAGOA -0.0052 0.0806 4.6792 0.6954 0.7913 -0.3281 0.4632 322
SIEMENS 0.0005 0.0673 2.5414 0.6859 0.5071 -0.1830 0.3241 366
STER 0.0030 0.0981 21.9190 -2.0029 1.2816 -0.9208 0.3608 366
SUNPHARMA 0.0086 0.0750 4.1561 0.9759 0.6321 -0.2526 0.3795 366
TATACHEM -0.0026 0.0604 1.9516 0.4603 0.4573 -0.1931 0.2642 366
TATACOMM 0.0035 0.0846 5.3392 0.7561 0.8171 -0.3477 0.4694 314
TATAGLOBAL -0.0001 0.0618 2.1164 0.6979 0.4638 -0.1800 0.2838 366
TATAMOTORS 0.0005 0.0733 1.5243 0.2109 0.5196 -0.2614 0.2583 366
TATAPOWER 0.0016 0.0625 6.1293 1.4627 0.5756 -0.1567 0.4190 366
TATASTEEL -0.0001 0.0658 1.0010 0.6259 0.4050 -0.1923 0.2127 366
TITAN 0.0002 0.0792 1.0802 0.5399 0.5182 -0.2523 0.2658 366
UNITECH -0.0001 0.0635 5.6429 1.1180 0.5987 -0.2549 0.3438 366
VIDEOIND 0.0149 0.2737 109.022 8.2642 4.5548 -0.7270 3.8278 350
VOLTAS 0.0010 0.0771 2.7335 1.0463 0.5459 -0.1894 0.3565 366
WIPRO 0.0168 0.1123 4.9656 0.8720 1.1090 -0.4800 0.6290 357
ZEEL 0.0113 0.1059 1.1334 0.1197 0.7173 -0.3766 0.3408 366
CNX NIFTY 0.0010 0.0370 1.1677 0.2986 0.2384 -0.1116 0.1269 366
104
As illustrated in Table 5.7, out of one hundred thirty, only one company (Castrol India Ltd.)
shows negative mean return in second sub-period. Unitech Ltd. and market index report the
highest return and lowest standard deviation, respectively. In addition, among companies
included in universe of investment, Asian Paints Ltd. shows the lowest standard deviation.
Out of one hundred thirty, 61 stocks (46.92 percent) show lower and broader peaks and
thinner tails compared to normal distribution as the kurtosis values are less than three. Lower
kurtosis means the return distribution is less clustered around the mean compared to normal
distribution; therefore, there is greater risk of extreme outcomes and relatively higher
standard deviation. Market index and 10.77 percent of stocks show the evidence of negative
skewness. United Phosphorus Ltd. shows the highest range, implying the highest statistical
dispersion.
Table 5.7 Descriptive statistics of universe of investment for the second sub-period (2001-2008)
Standard
Deviation
ABB 0.0100 0.0486 1.4856 0.3118 0.3691 -0.1924 0.1767 365
ABIRLANUVO 0.0096 0.0568 1.5977 0.5554 0.4159 -0.1839 0.2320 365
ACC 0.0063 0.0489 2.4600 0.0274 0.4275 -0.2075 0.2200 365
ADANIENT 0.0138 0.1067 23.5344 3.7461 1.1272 -0.2256 0.9016 365
AMBUJACEM 0.0057 0.0401 0.9690 -0.1662 0.2820 -0.1158 0.1663 365
AMTEKAUTO 0.0067 0.0521 4.0518 1.2243 0.4006 -0.1307 0.2699 365
ANDHRABANK 0.0078 0.0623 2.6279 0.4183 0.5710 -0.2742 0.2968 364
APOLLOHOSP 0.0058 0.0605 5.7938 1.0715 0.5651 -0.2011 0.3640 365
APOLLOTYRE 0.0078 0.0643 3.3482 1.1194 0.5114 -0.1619 0.3494 365
ASHOKLEY 0.0071 0.0587 1.5080 0.3925 0.4186 -0.1830 0.2355 365
ASIANPAINT 0.0059 0.0319 1.9694 0.4879 0.2254 -0.1054 0.1200 365
AUROPHARMA 0.0039 0.0643 4.6555 0.6911 0.6184 -0.2319 0.3865 365
AXISBANK 0.0114 0.0611 1.9684 0.6524 0.4855 -0.1777 0.3078 365
BAJAJHLDNG 0.0046 0.0552 36.1818 -3.5547 0.7589 -0.5878 0.1712 365
BANKBARODA 0.0067 0.0684 2.0165 0.2789 0.5422 -0.2754 0.2667 365
BANKINDIA 0.0114 0.0745 1.4551 0.4837 0.5183 -0.2575 0.2608 365
BATAINDIA 0.0060 0.0697 1.2661 0.4805 0.4648 -0.2156 0.2492 365
BEL 0.0104 0.0614 1.0703 0.2985 0.4291 -0.1982 0.2309 365
BEML 0.0142 0.0872 10.6758 1.8690 0.9371 -0.2515 0.6856 365
BHARATFORG 0.0094 0.0580 2.4720 0.5293 0.4526 -0.1734 0.2792 365
BHEL 0.0108 0.0543 1.7325 -0.1383 0.4197 -0.2334 0.1863 365
BHUSANSTL 0.0112 0.0733 2.8366 1.0525 0.5552 -0.1842 0.3710 306
BOSCHLTD 0.0082 0.0443 2.0942 0.5207 0.3332 -0.1368 0.1964 365
BPCL 0.0042 0.0616 2.3410 0.0740 0.4772 -0.2406 0.2366 365
BRITANNIA 0.0023 0.0325 3.1002 0.5098 0.3012 -0.1398 0.1615 365
CADILAHC 0.0049 0.0473 5.5288 1.2806 0.4325 -0.1271 0.3053 365
CASTROL -0.0012 0.0391 6.2904 0.5312 0.3638 -0.1652 0.1986 141
105
Standard
Deviation
CENTURYTEX 0.0111 0.0720 4.0839 0.9436 0.6550 -0.1976 0.4574 365
CESC 0.0118 0.0835 7.8125 1.6433 0.8262 -0.2190 0.6072 365
CHAMBLFERT 0.0064 0.0635 15.8736 1.5720 0.7489 -0.2263 0.5226 365
CIPLA 0.0038 0.0467 1.7107 0.1774 0.3865 -0.1701 0.2164 365
COLPAL 0.0032 0.0392 3.5320 0.8567 0.3278 -0.1369 0.1909 362
CONCOR 0.0080 0.0488 2.8595 0.5209 0.3875 -0.1598 0.2277 365
COROMANDEL 0.0087 0.0643 4.5595 0.7436 0.5966 -0.2496 0.3470 363
CRISIL 0.0105 0.0599 9.9977 1.8374 0.6051 -0.1485 0.4566 365
CROMPGREAV 0.0144 0.0687 7.8488 1.5392 0.6763 -0.1720 0.5042 365
CUMMINSIND 0.0059 0.0513 1.2075 0.4556 0.3910 -0.1876 0.2034 365
DABUR 0.0058 0.0494 2.4514 0.1928 0.4063 -0.2114 0.1950 365
DRREDDY 0.0029 0.0480 3.4443 0.1154 0.4333 -0.2022 0.2311 365
ENGINERSIN 0.0079 0.0770 7.4832 1.7123 0.7456 -0.2511 0.4945 365
ESSAROIL 0.0163 0.1228 53.7288 5.2158 1.7017 -0.2378 1.4639 365
EXIDEIND 0.0097 0.0578 3.8743 1.1604 0.4552 -0.1768 0.2783 365
FEDERALBNK 0.0102 0.0650 5.2730 0.9611 0.6187 -0.2652 0.3534 365
GAIL 0.0075 0.0530 3.4482 0.0890 0.5358 -0.2751 0.2607 365
GESHIP 0.0102 0.0595 1.5033 0.3911 0.4048 -0.1754 0.2294 362
GLAXO 0.0035 0.0447 3.0027 -0.0685 0.3848 -0.2197 0.1651 365
GLENMARK 0.0144 0.0697 3.9081 1.2048 0.5857 -0.1693 0.4164 365
GMDCLTD 0.0134 0.0788 6.2466 1.3501 0.7244 -0.2415 0.4829 365
GRASIM 0.0076 0.0459 0.8717 0.1775 0.3102 -0.1450 0.1652 365
GSFC 0.0088 0.0773 2.2931 0.6469 0.5988 -0.2553 0.3435 365
GSKCONS 0.0021 0.0392 2.6063 0.2642 0.3059 -0.1446 0.1613 365
GUJFLUORO 0.0135 0.0771 2.8700 1.2022 0.5419 -0.2281 0.3138 365
HAVELLS 0.0104 0.0598 3.1840 1.1090 0.4677 -0.1503 0.3174 365
HCC 0.0133 0.0753 2.1398 0.9559 0.4637 -0.1515 0.3122 365
HCLTECH 0.0039 0.0753 15.4312 0.9339 1.0313 -0.4061 0.6252 365
HDFC 0.0073 0.0462 1.5191 0.0771 0.3477 -0.1544 0.1933 365
HDFCBANK 0.0059 0.0420 0.7641 0.1531 0.2772 -0.1323 0.1448 365
HEROMOTOCO 0.0055 0.0474 1.2099 0.3785 0.3338 -0.1318 0.2021 365
HEXAWARE 0.0049 0.0830 3.0492 0.8971 0.6085 -0.2365 0.3720 346
HINDALCO 0.0037 0.0507 1.4597 -0.4061 0.3572 -0.2226 0.1346 365
HINDOILEXP 0.0108 0.0952 6.5951 1.8677 0.7468 -0.1715 0.5752 365
HINDPETRO 0.0035 0.0654 4.0958 0.2400 0.6104 -0.2930 0.3174 365
HINDUNILVR 0.0012 0.0424 0.5098 0.0081 0.2794 -0.1481 0.1313 365
ICICIBANK 0.0061 0.0581 5.1943 0.7728 0.5504 -0.1792 0.3711 365
IDBI 0.0063 0.0788 5.1097 1.0510 0.7171 -0.2848 0.4323 365
IFCI 0.0116 0.1083 5.3037 1.3242 0.9987 -0.3244 0.6743 365
INDHOTEL 0.0055 0.0466 4.2124 -0.5632 0.3828 -0.2467 0.1361 365
INDIACEM 0.0071 0.0725 1.8093 0.5599 0.5412 -0.2164 0.3248 365
INDUSINDBK 0.0075 0.0736 2.8715 0.6589 0.6374 -0.2273 0.4101 365
INFY 0.0048 0.0582 10.0746 -0.6696 0.7167 -0.3822 0.3345 365
106
Standard
Deviation
IOB 0.0100 0.0656 2.9501 0.0978 0.5851 -0.3299 0.2552 365
IPCALAB 0.0094 0.0612 6.7143 1.2614 0.5633 -0.1688 0.3945 365
ITC 0.0045 0.0402 2.4058 0.6127 0.3249 -0.1098 0.2150 365
IVRCLINFRA 0.0142 0.0885 8.5092 1.7133 0.8050 -0.2326 0.5724 365
JINDALSAW 0.0097 0.0921 9.3269 1.3920 0.9358 -0.2604 0.6754 365
JINDALSTEL 0.0161 0.0790 5.7371 1.0625 0.7817 -0.2691 0.5125 365
JISLJALEQS 0.0149 0.0895 10.5239 1.9755 0.8856 -0.2161 0.6695 324
JSWISPAT 0.0112 0.1157 2.6935 0.5591 1.0000 -0.5000 0.5000 346
JSWSTEEL 0.0081 0.0847 17.8732 2.4965 0.8890 -0.1632 0.7257 281
KARURVYSYA 0.0067 0.0594 5.6062 0.1419 0.6467 -0.3484 0.2984 365
KOTAKBANK 0.0138 0.0737 3.9546 0.7837 0.6818 -0.2569 0.4249 365
KTKBANK 0.0104 0.0710 4.9554 1.4610 0.6175 -0.2025 0.4149 365
LICHSGFIN 0.0077 0.0598 3.7002 1.0023 0.4754 -0.1790 0.2963 365
LT 0.0098 0.0518 4.7918 0.7112 0.4675 -0.1731 0.2944 360
LUPIN 0.0090 0.0694 6.9453 1.2929 0.6901 -0.2519 0.4382 356
M&M 0.0082 0.0554 2.0873 0.4295 0.4491 -0.1753 0.2738 365
MARICO 0.0079 0.0461 3.5313 0.9955 0.3814 -0.1440 0.2374 365
MAX 0.0090 0.0881 32.8017 3.6026 1.1123 -0.1838 0.9285 365
MOTHERSUMI 0.0099 0.0611 2.1140 0.8026 0.4314 -0.1562 0.2752 365
MPHASIS 0.0083 0.0812 12.0879 2.1722 0.7988 -0.2647 0.5342 365
MRF 0.0063 0.0622 6.0640 1.4478 0.5794 -0.1779 0.4015 365
NCC 0.0162 0.0768 1.4598 0.5157 0.5402 -0.2079 0.3324 311
ONGC 0.0082 0.0538 7.4513 1.2333 0.5445 -0.1768 0.3678 365
ORIENTBANK 0.0061 0.0622 1.7665 0.3265 0.5031 -0.2697 0.2334 365
PIRHEALTH 0.0057 0.0494 1.6506 0.1452 0.3383 -0.1860 0.1523 365
RALLIS 0.0090 0.0782 3.6513 1.0861 0.6627 -0.2110 0.4516 365
RANBAXY 0.0035 0.0466 1.4922 0.0237 0.3555 -0.1525 0.2030 365
RAYMOND 0.0042 0.0518 3.6078 0.0807 0.4822 -0.2614 0.2209 365
RELCAPITAL 0.0111 0.0719 4.6186 0.6868 0.6875 -0.2387 0.4488 365
RELIANCE 0.0061 0.0488 3.9049 -0.1795 0.4444 -0.2231 0.2213 365
RELINFRA 0.0069 0.0554 2.8552 0.2631 0.4460 -0.1940 0.2520 365
RUCHISOYA 0.0095 0.0732 12.9649 2.3138 0.7524 -0.1850 0.5674 365
SAIL 0.0123 0.0733 6.0875 1.2273 0.6534 -0.1693 0.4841 365
SBIN 0.0072 0.0495 2.9299 0.2975 0.4466 -0.1989 0.2476 365
SCI 0.0077 0.0716 5.8440 0.9913 0.7200 -0.2784 0.4416 365
SESAGOA 0.0158 0.0730 0.9657 0.5985 0.4992 -0.1776 0.3216 365
SIEMENS 0.0104 0.0525 2.4365 0.5781 0.4166 -0.1654 0.2511 365
SINTEX 0.0135 0.0692 1.3654 0.5857 0.4563 -0.1738 0.2825 361
SOUTHBANK 0.0074 0.0660 3.1581 1.0151 0.5347 -0.2077 0.3270 365
SRTRANSFIN 0.0133 0.0692 5.4798 0.7526 0.6940 -0.2661 0.4279 365
STAR 0.0037 0.0817 2.7761 0.9658 0.5995 -0.2627 0.3368 301
STER 0.0119 0.0686 2.8209 -0.1356 0.6054 -0.3254 0.2800 258
STERLINBIO 0.0115 0.0798 9.3405 2.0116 0.8271 -0.2641 0.5630 365
107
Standard
Deviation
SUNPHARMA 0.0070 0.0424 1.5442 0.1313 0.2849 -0.1308 0.1541 365
SYNDIBANK 0.0083 0.0674 4.0612 0.2139 0.6474 -0.3424 0.3050 365
TATACHEM 0.0069 0.0520 3.4128 -0.3022 0.4559 -0.2451 0.2109 365
TATACOMM 0.0041 0.0677 3.2968 -0.3736 0.6277 -0.3477 0.2801 365
TATAGLOBAL 0.0046 0.0483 1.7215 0.0387 0.3468 -0.1689 0.1779 365
TATAMOTORS 0.0074 0.0481 0.4811 -0.0427 0.2989 -0.1311 0.1677 365
TATAPOWER 0.0083 0.0533 1.6398 0.1652 0.4177 -0.1852 0.2325 365
TATASTEEL 0.0078 0.0554 0.9163 -0.0719 0.3999 -0.2167 0.1832 365
THERMAX 0.0124 0.0567 1.3732 0.4751 0.4136 -0.1625 0.2511 365
TITAN 0.0116 0.0725 1.1265 0.6872 0.4518 -0.1643 0.2874 365
UNIPHOS 0.0183 0.1378 43.9939 4.7006 1.9667 -0.4667 1.5000 338
UNITECH 0.0231 0.0884 1.8158 0.8094 0.5672 -0.2262 0.3410 365
VIDEOIND 0.0136 0.1238 28.1372 3.8101 1.4057 -0.3331 1.0726 361
VIJAYABANK 0.0074 0.0631 1.5638 0.4203 0.4718 -0.2170 0.2548 365
VOLTAS 0.0124 0.0643 1.3168 0.6973 0.4225 -0.1572 0.2652 365
WIPRO 0.0043 0.0698 20.1951 1.8530 0.9291 -0.3001 0.6290 365
ZEEL 0.0049 0.0765 2.8212 -0.2552 0.6929 -0.3766 0.3163 365
CNX NIFTY 0.0045 0.0317 1.6155 -0.5285 0.2393 -0.1231 0.1162 365
Table 5.8 shows that out of one hundred fifty five, only two stocks have negative mean
returns. Unitech Ltd. reports the highest return with a relatively higher standard deviation.
Bosch Ltd. and Essar Oil Ltd. show the lowest and highest standard deviation, respectively.
54.19 percent of stocks have the kurtosis values more than three. Out of one hundred fifty
five, 31 stocks (20 percent) and market index show the evidence of negative skewness.
Essar Oil Ltd. shows the highest range consistent with the evidence of its standard deviation.
It can be seen that Market index has kurtosis value less than three for the entire period and all
three sub-periods implying that there are fewer large fluctuations in return distribution of the
market compared to normal distribution. In addition, return distributions of market index for
the entire period and two out of three sub-periods are negatively skewed implying that the
frequent small gains and a few extreme losses can happen in the market.
108
Table 5.8 Descriptive statistics of universe of investment for the third sub-period (2005-2012)
Standard
Deviation
ABB 0.0052 0.0562 3.4489 0.4041 0.5099 -0.2274 0.2825 366
ABIRLANUVO 0.0044 0.0625 5.1058 0.2719 0.6425 -0.2542 0.3883 366
ACC 0.0049 0.0506 1.8336 -0.2456 0.3743 -0.2075 0.1668 366
ADANIENT 0.0104 0.0958 21.9205 2.6345 1.2474 -0.3458 0.9016 366
ALBK 0.0037 0.0603 3.1430 0.4070 0.5587 -0.2234 0.3353 366
AMBUJACEM 0.0045 0.0510 7.4324 0.6415 0.5670 -0.2095 0.3575 366
AMTEKAUTO 0.0022 0.0735 4.7595 0.4260 0.6656 -0.3330 0.3326 366
ANDHRABANK 0.0020 0.0570 2.8572 0.5232 0.5236 -0.2148 0.3087 366
APOLLOHOSP 0.0049 0.0494 5.5930 1.0700 0.4792 -0.1748 0.3045 366
APOLLOTYRE 0.0046 0.0610 1.7360 0.3920 0.5041 -0.2582 0.2459 366
ASHOKLEY 0.0048 0.0624 6.3282 1.1200 0.6038 -0.1830 0.4208 366
ASIANPAINT 0.0065 0.0381 2.3985 -0.0570 0.3240 -0.1585 0.1655 366
AUROPHARMA 0.0046 0.0701 2.7759 -0.1413 0.5650 -0.2760 0.2891 366
AXISBANK 0.0064 0.0630 1.0427 -0.1207 0.4721 -0.2132 0.2589 366
BAJAJHLDNG 0.0018 0.0646 19.6647 -1.9284 0.8475 -0.5878 0.2598 366
BANKBARODA 0.0054 0.0587 2.0350 0.3714 0.4338 -0.1951 0.2387 366
BANKINDIA 0.0060 0.0724 2.0282 0.3520 0.5476 -0.2452 0.3024 366
BATAINDIA 0.0085 0.0661 3.5710 0.1957 0.5981 -0.3315 0.2666 366
BEL 0.0037 0.0536 5.2200 0.9023 0.4983 -0.1667 0.3317 366
BEML 0.0041 0.0675 5.4957 0.9356 0.6626 -0.2268 0.4359 366
BHARATFORG 0.0022 0.0590 5.2107 0.4528 0.6132 -0.2664 0.3469 366
BHARTIARTL 0.0043 0.0478 2.6027 -0.1477 0.4282 -0.2110 0.2172 366
BHEL 0.0048 0.0546 1.4975 0.0606 0.4047 -0.2199 0.1847 366
BHUSANSTL 0.0091 0.0777 12.7450 1.5767 0.9002 -0.2608 0.6395 366
BIOCON 0.0019 0.0556 3.5395 0.4909 0.4773 -0.2139 0.2634 366
BOSCHLTD 0.0045 0.0363 2.3257 0.0570 0.2575 -0.1368 0.1208 366
BPCL 0.0034 0.0585 2.0566 0.4161 0.4304 -0.2045 0.2259 366
BRITANNIA 0.0042 0.0395 2.8629 0.5588 0.3130 -0.1398 0.1732 366
CADILAHC 0.0051 0.0435 1.9984 0.5492 0.3207 -0.1271 0.1936 366
CANBK 0.0043 0.0612 1.5268 0.3156 0.4640 -0.1811 0.2829 366
CASTROL 0.0068 0.0441 1.4873 0.4065 0.3268 -0.1282 0.1986 241
CENTURYTEX 0.0041 0.0740 3.8048 0.5066 0.7151 -0.2772 0.4379 366
CESC 0.0030 0.0632 6.2682 0.3554 0.7301 -0.3380 0.3921 366
CHAMBLFERT 0.0063 0.0852 6.9446 0.8523 0.8833 -0.3608 0.5226 366
CIPLA 0.0039 0.0421 2.2226 -0.1888 0.3502 -0.1890 0.1612 366
COLPAL 0.0059 0.0401 2.4664 0.5755 0.3278 -0.1369 0.1909 363
CONCOR 0.0033 0.0430 1.7257 0.1650 0.3546 -0.1482 0.2064 366
COROMANDEL 0.0093 0.0654 3.6850 0.5030 0.5966 -0.2496 0.3470 366
CRISIL 0.0089 0.0552 4.6556 1.0046 0.4626 -0.1849 0.2777 366
CROMPGREAV 0.0059 0.0646 8.7824 1.1108 0.7076 -0.2483 0.4594 366
CUMMINSIND 0.0064 0.0522 2.3431 0.2632 0.3963 -0.1876 0.2087 366
DABUR 0.0058 0.0454 3.6324 -0.0138 0.4287 -0.2114 0.2173 366
109
Standard
Deviation
DHFL 0.0089 0.0863 5.9601 1.1365 0.8221 -0.2659 0.5562 366
DIVISLAB 0.0072 0.0569 2.3288 0.4440 0.4489 -0.1925 0.2565 366
DRREDDY 0.0051 0.0423 2.7661 0.0289 0.3796 -0.2070 0.1727 366
ENGINERSIN 0.0066 0.0710 5.5384 1.4027 0.5796 -0.2275 0.3522 366
ESSAROIL 0.0071 0.1210 59.6684 5.4369 1.7514 -0.2875 1.4639 366
EXIDEIND 0.0080 0.0534 2.7303 0.7096 0.4108 -0.1324 0.2783 366
FEDERALBNK 0.0050 0.0548 0.8457 0.2243 0.3719 -0.1741 0.1978 366
GAIL 0.0036 0.0444 1.2981 -0.0190 0.3681 -0.1919 0.1762 366
GESHIP 0.0048 0.0685 2.8768 0.4728 0.5844 -0.2366 0.3478 363
GLAXO 0.0040 0.0383 4.9800 -0.2283 0.3848 -0.2197 0.1651 366
GLENMARK 0.0045 0.0679 4.4644 -0.2387 0.6166 -0.3259 0.2907 366
GMDCLTD 0.0082 0.0823 5.8051 1.1085 0.7523 -0.2694 0.4829 366
GODREJCP 0.0063 0.0472 1.4744 0.3567 0.3274 -0.1507 0.1767 366
GRASIM 0.0034 0.0516 3.0375 -0.2708 0.4418 -0.2468 0.1950 366
GSFC 0.0059 0.0639 1.7513 -0.2615 0.5102 -0.3171 0.1931 366
GSKCONS 0.0065 0.0391 1.3400 0.4205 0.2646 -0.1078 0.1568 366
GUJFLUORO 0.0097 0.0796 4.1409 0.5631 0.7997 -0.3671 0.4326 366
HAVELLS 0.0104 0.0705 8.0853 1.3596 0.7371 -0.2618 0.4753 366
HCC 0.0045 0.0916 8.3648 1.2332 0.9953 -0.3277 0.6676 366
HCLTECH 0.0045 0.0586 3.0554 0.5204 0.4971 -0.1926 0.3044 366
HDFC 0.0057 0.0530 0.5344 -0.0642 0.3527 -0.1720 0.1806 366
HDFCBANK 0.0056 0.0496 1.1806 0.0496 0.3719 -0.1787 0.1932 366
HEROMOTOCO 0.0045 0.0426 0.3937 0.2682 0.2541 -0.1061 0.1480 366
HEXAWARE 0.0040 0.0755 9.3100 1.6417 0.7717 -0.2128 0.5589 366
HINDALCO 0.0029 0.0706 3.9193 0.3506 0.7185 -0.3213 0.3972 366
HINDOILEXP 0.0053 0.0951 5.3595 1.5669 0.8088 -0.2722 0.5366 366
HINDPETRO 0.0017 0.0600 2.3496 0.3673 0.4601 -0.2253 0.2348 366
HINDUNILVR 0.0039 0.0409 1.0875 -0.0724 0.2742 -0.1481 0.1260 366
ICICIBANK 0.0045 0.0666 2.3640 -0.0909 0.5715 -0.2790 0.2925 366
IDBI 0.0028 0.0701 3.7051 0.4770 0.6405 -0.2079 0.4326 366
IFCI 0.0085 0.1033 12.0211 1.6992 1.0850 -0.3244 0.7606 366
IGL 0.0049 0.0472 2.3380 0.2821 0.3393 -0.1388 0.2004 366
INDHOTEL 0.0017 0.0550 3.7386 0.0944 0.4985 -0.2467 0.2517 366
INDIABULLS 0.0070 0.0972 3.6287 -0.3193 0.8587 -0.5430 0.3158 366
INDIACEM 0.0038 0.0670 1.4575 0.1838 0.5036 -0.2164 0.2872 366
INDUSINDBK 0.0080 0.0782 2.9320 0.6540 0.6353 -0.2252 0.4101 366
INFY 0.0035 0.0408 0.7566 0.0499 0.2866 -0.1198 0.1668 366
IOB 0.0028 0.0669 2.0732 0.1306 0.5274 -0.2498 0.2776 366
IPCALAB 0.0057 0.0489 2.9456 0.1812 0.4444 -0.1979 0.2465 366
ITC 0.0052 0.0385 3.1630 0.2510 0.3573 -0.1423 0.2150 366
IVRCLINFRA 0.0060 0.1001 8.3281 1.0298 1.0687 -0.4360 0.6326 366
JINDALSAW 0.0059 0.0734 2.5068 0.0923 0.6649 -0.3344 0.3304 366
JINDALSTEL 0.0106 0.0793 6.4326 1.0810 0.7817 -0.2691 0.5125 366
110
Standard
Deviation
JISLJALEQS 0.0058 0.0630 2.5921 -0.2186 0.5439 -0.3248 0.2190 366
JPASSOCIAT 0.0067 0.0843 1.2957 0.2263 0.6586 -0.3448 0.3138 366
JSWISPAT -0.0006 0.0882 4.1104 1.0193 0.7146 -0.2582 0.4564 347
JSWSTEEL 0.0053 0.0838 4.0215 0.6108 0.7843 -0.2841 0.5001 366
KARURVYSYA 0.0053 0.0460 2.7442 0.7044 0.3525 -0.1505 0.2020 366
KOTAKBANK 0.0083 0.0709 2.0883 -0.0472 0.5814 -0.3086 0.2728 366
KTKBANK 0.0030 0.0676 12.5035 1.8784 0.7357 -0.1816 0.5541 366
LICHSGFIN 0.0072 0.0697 3.6035 0.7372 0.5764 -0.2800 0.2963 366
LT 0.0063 0.0581 3.9121 0.4075 0.5470 -0.2318 0.3152 366
LUPIN 0.0073 0.0453 2.2460 0.0073 0.4005 -0.1931 0.2075 366
M&M 0.0067 0.0608 4.5750 -0.1960 0.6486 -0.3472 0.3014 366
MARICO 0.0065 0.0444 1.6153 0.2358 0.3063 -0.1440 0.1623 366
MARUTI 0.0046 0.0528 1.2094 0.0399 0.3681 -0.1600 0.2081 366
MAX 0.0038 0.0684 3.3540 0.6221 0.5272 -0.2383 0.2889 366
MCDOWELL-N 0.0054 0.0744 3.9825 -0.3042 0.6495 -0.4108 0.2387 366
MOTHERSUMI 0.0058 0.0551 2.8533 0.2190 0.4838 -0.2621 0.2217 366
MPHASIS 0.0055 0.0633 4.7159 0.1889 0.6420 -0.3184 0.3236 366
MRF 0.0052 0.0624 5.4254 1.3086 0.5794 -0.1779 0.4015 366
NCC 0.0042 0.0889 5.5122 0.7293 0.9036 -0.4066 0.4970 366
NTPC 0.0026 0.0390 1.5545 0.1173 0.2867 -0.1318 0.1549 366
OFSS 0.0062 0.0650 5.2807 0.5738 0.6843 -0.2817 0.4026 366
ONGC 0.0029 0.0483 3.9834 0.4332 0.4479 -0.1615 0.2864 366
OPTOCIRCUI 0.0098 0.0720 4.5580 0.9321 0.6641 -0.2970 0.3672 366
ORIENTBANK 0.0015 0.0645 1.0913 0.2552 0.4572 -0.2098 0.2474 366
PANTALOONR 0.0031 0.0734 3.6023 0.7134 0.6654 -0.2308 0.4346 366
PETRONET 0.0057 0.0580 2.6583 0.0999 0.4707 -0.2618 0.2089 366
PIRHEALTH 0.0033 0.0515 3.3041 -0.2461 0.4604 -0.2597 0.2007 366
PNB 0.0037 0.0545 3.4558 0.6207 0.4931 -0.1736 0.3195 366
PTC 0.0030 0.0673 3.4639 0.4136 0.6217 -0.2865 0.3352 366
RAJESHEXPO 0.0092 0.0885 3.2346 0.7197 0.6689 -0.2522 0.4168 366
RALLIS 0.0077 0.0621 2.1501 0.7118 0.4361 -0.1662 0.2699 366
RANBAXY 0.0016 0.0624 3.7386 -0.0449 0.5625 -0.2659 0.2966 366
RAYMOND 0.0033 0.0718 14.4171 1.9566 0.8113 -0.2614 0.5499 366
RELCAPITAL 0.0059 0.0871 5.2444 0.6128 0.7861 -0.2591 0.5270 366
RELIANCE 0.0041 0.0536 5.7845 0.4079 0.5685 -0.2194 0.3492 366
RELINFRA 0.0031 0.0750 2.7041 0.3137 0.6733 -0.3062 0.3671 366
RUCHISOYA 0.0051 0.0811 10.7265 1.5369 0.8473 -0.2798 0.5674 366
SAIL 0.0033 0.0676 1.9496 0.3727 0.5579 -0.2618 0.2961 366
SBIN 0.0049 0.0574 3.1986 0.6311 0.4981 -0.1794 0.3186 366
SCI 0.0005 0.0609 4.5997 0.8580 0.5611 -0.1959 0.3653 366
SESAGOA 0.0072 0.0744 1.1119 0.6221 0.4904 -0.1962 0.2942 366
SIEMENS 0.0059 0.0590 3.1229 0.0711 0.5026 -0.2515 0.2511 366
SINTEX 0.0050 0.0777 5.1270 0.4675 0.7773 -0.3220 0.4553 366
111
Standard
Deviation
SOUTHBANK 0.0061 0.0611 4.3250 1.0334 0.5408 -0.1602 0.3807 366
SRTRANSFIN 0.0082 0.0575 1.8581 -0.0520 0.4229 -0.2320 0.1909 366
STAR 0.0056 0.0715 4.4887 0.6767 0.6429 -0.2647 0.3782 366
STER 0.0059 0.0748 3.1672 0.0074 0.6728 -0.3254 0.3474 366
STERLINBIO -0.0032 0.0707 21.9383 0.8196 1.0797 -0.5167 0.5630 366
SUNPHARMA 0.0057 0.0399 1.5719 -0.1426 0.2768 -0.1305 0.1463 366
SYNDIBANK 0.0040 0.0631 1.9035 -0.0448 0.4980 -0.2389 0.2592 366
TATACHEM 0.0040 0.0580 3.4680 -0.1163 0.4831 -0.2456 0.2374 366
TATACOMM 0.0025 0.0637 3.2752 0.5367 0.5259 -0.1982 0.3277 366
TATAGLOBAL 0.0033 0.0477 2.6940 0.3660 0.4004 -0.1671 0.2333 366
TATAMOTORS 0.0055 0.0648 2.8229 0.0487 0.6356 -0.3321 0.3035 366
TATAPOWER 0.0043 0.0524 1.5325 -0.0045 0.3586 -0.1852 0.1734 366
TATASTEEL 0.0032 0.0707 2.8742 0.2457 0.6180 -0.2811 0.3369 366
TCS 0.0043 0.0451 1.2765 -0.1458 0.3327 -0.2018 0.1309 366
THERMAX 0.0057 0.0603 2.9604 0.3195 0.5771 -0.2532 0.3239 366
TITAN 0.0103 0.0639 1.8386 0.3730 0.5247 -0.2373 0.2874 366
UCOBANK 0.0047 0.0642 4.1502 0.6404 0.6036 -0.2174 0.3862 366
ULTRACEMCO 0.0053 0.0508 0.8892 0.0464 0.3395 -0.1640 0.1754 366
UNIONBANK 0.0040 0.0591 1.5500 0.1062 0.4814 -0.2377 0.2437 366
UNIPHOS 0.0036 0.0609 3.4747 0.4796 0.5865 -0.2871 0.2994 366
UNITECH 0.0137 0.1166 3.7208 0.2688 1.1721 -0.6108 0.5613 366
VIDEOIND 0.0014 0.0701 5.4524 0.7781 0.6798 -0.3243 0.3555 366
VIJAYABANK 0.0016 0.0630 3.8172 0.6208 0.5720 -0.1925 0.3796 366
VOLTAS 0.0071 0.0733 4.2181 0.7337 0.7217 -0.2826 0.4391 366
WELCORP 0.0059 0.0852 3.6610 0.0631 0.8001 -0.4418 0.3583 361
WIPRO 0.0034 0.0473 2.5234 -0.1413 0.4283 -0.2299 0.1985 366
ZEEL 0.0039 0.0645 2.5025 -0.0911 0.5134 -0.2575 0.2559 366
CNX NIFTY 0.0033 0.0363 2.2259 -0.2838 0.3139 -0.1595 0.1544 366
5.5.2 Portfolios Constructed Using Markowitz Approach

As stated, in order to construct optimal portfolios by the Markowitz approach we maximize
the utility function by maximizing the portfolio expected return and minimizing the portfolio
risk at a specified level of risk aversion. Tables 5.9, 5.10, 5.11 and 5.12 show the returns,
standard deviations, and investors’ utilities of the portfolios constructed using Markowitz
approach in the first sub-period with sample size of 10, 30, 50 and 70, respectively. The
sample size indicates the number of stocks that are candidates for investment. For each
sample size, 72 portfolios are constructed with six construction periods and twelve levels of
risk aversion.
Table 5.9 shows that the optimal portfolios constructed at risk aversion levels of 1, 1.25, 1.66,
and 2 for the construction period 1995-1996 have the same return and risk characteristics,
112
indicating that the structures of these portfolios are identical. According to equation 5.5, it is
clear that the investors’ utilities of these portfolios are changed due to different levels of risk
aversion. Likewise, the portfolios obtained at five levels of risk aversion, namely, 1, 1.25,
1.66, 2, and 2.5, for the construction period 1995-1997 have equal returns and risks. In
addition, the portfolios obtained for the construction period 1995-2000 have the same return
and risk characteristic at risk aversions of 1 and 1.25. The same happens for portfolios of
construction period 1995-2001. For all construction periods, the investor’s utilities of
portfolios are negative at risk aversions of 50, 90, and 100.
As can be found from Table 5.10, the structures of portfolios constructed at risk aversion
levels of 1, 1.25, and 1.66 for the construction period 1995-1996 are identical. The same
happens for portfolios of construction period 1995-1998. For the construction period 1995-
1999, the return and risk characteristics of portfolios constructed at four levels of risk
aversion, namely, 1, 1.25, 1.66, and 2 are the same. In addition, the portfolios obtained at risk
aversions of 1 and 1.25, for the construction period 1995-2000 have equal returns and risks.
The same happens for portfolios of construction period 1995-2001. The investor’s utilities of
portfolios decrease as the level of risk aversion increases.
From Table 5.11 it is evident that the structures of optimal portfolios for the construction
periods 1995-1996 and 1995-1999 are constant as level of risk aversion changes between 1
and 1.66. For other construction periods except 1995-1997 the structures of portfolios remain
constant at risk aversions of 1 and 1.25. For all construction periods, the investor’s utilities of
portfolios are negative at risk aversions of 50, 90, and 100.
Table 5.12 represents that in 4 out of 6 construction periods, the optimal portfolio structures
are constant as level of risk aversion changes between 1 and 1.66. As level of risk aversion
increases more than 2, returns, standard deviations and investors’ utilities of portfolios
decrease.
Altogether, the portfolios constructed using Markowitz approach in the first sub-period with
sample size of 10, 30, 50 and 70 report negative investors’ utilities at risk aversion levels of
50 and more.
113
Table 5.9 Results of portfolios constructed using Markowitz approach in the first sub-period
with sample size of 10
Construction Return Std Dev Utility Construction Return Std Dev Utility
A A
Period (%) (%) (%) Period (%) (%) (%)
1 0.7026 4.3766 0.6068 1 0.2853 5.1136 0.1545
1.25 0.7026 4.3766 0.5828 1.25 0.2617 4.6819 0.1247
1.66 0.7026 4.3766 0.5436 1.66 0.2374 4.3024 0.0838
2 0.7026 4.3766 0.5110 2 0.2248 4.1381 0.0536
2.5 0.6860 4.2169 0.4637 2.5 0.2125 4.0021 0.0123
3 0.6480 3.8726 0.4231 3 0.2044 3.9264 -0.0269
1995-1996 1995-1999
4 0.6005 3.4968 0.3560 4 0.1941 3.8496 -0.1023
5 0.5721 3.3084 0.2984 5 0.1880 3.8135 -0.1756
10 0.5006 2.9847 0.0552 10 0.0873 3.4311 -0.5013
50 0.2739 2.6530 -1.4857 50 -0.0887 3.1485 -2.5670
90 0.1132 2.5571 -2.8292 90 -0.1224 3.1323 -4.5374
100 0.0932 2.5488 -3.1550 100 -0.1277 3.1305 -5.0276
1 0.6347 4.3883 0.5385 1 0.8632 7.4324 0.5870
1.25 0.6347 4.3883 0.5144 1.25 0.8632 7.4324 0.5179
1.66 0.6347 4.3883 0.4749 1.66 0.7989 6.8275 0.4120
2 0.6347 4.3883 0.4422 2 0.7451 6.3824 0.3378
2.5 0.6347 4.3883 0.3940 2.5 0.6733 5.8540 0.2449
3 0.6172 4.2409 0.3474 3 0.6254 5.5460 0.1640
1995-1997 1995-2000
4 0.5920 4.0638 0.2617 4 0.5310 5.0334 0.0243
5 0.5408 3.7705 0.1853 5 0.4396 4.6106 -0.0918
10 0.4042 3.1951 -0.1062 10 0.2308 3.8721 -0.5189
50 0.1624 2.7517 -1.7305 50 -0.0453 3.4370 -2.9985
90 0.1305 2.7336 -3.2321 90 -0.0836 3.4196 -5.3458
100 0.1265 2.7320 -3.6055 100 -0.0884 3.4181 -5.9302
1 0.2559 4.3101 0.1630 1 0.6209 7.8416 0.3135
1.25 0.2499 4.1831 0.1405 1.25 0.6209 7.8416 0.2366
1.66 0.2423 4.0578 0.1057 1.66 0.5402 7.1349 0.1176
2 0.2306 3.8981 0.0787 2 0.4385 6.3030 0.0412
2.5 0.2164 3.7299 0.0425 2.5 0.3328 5.4971 -0.0449
3 0.1983 3.5510 0.0092 3 0.2621 5.0028 -0.1134
1995-1998 1995-2001
4 0.1681 3.2938 -0.0489 4 0.1735 4.4570 -0.2237
5 0.1488 3.1591 -0.1007 5 0.1110 4.1306 -0.3156
10 0.1102 2.9702 -0.3309 10 -0.0221 3.6154 -0.6757
50 0.0295 2.8290 -1.9713 50 -0.1422 3.4123 -3.0531
90 0.0172 2.8222 -3.5670 90 -0.1581 3.4050 -5.3754
100 0.0157 2.8216 -3.9651 100 -0.1601 3.4044 -5.9550
114
A A
Period (%) (%) (%) Period (%) (%) (%)
1 1.6887 6.9309 1.4485 1 1.4933 6.3986 1.2886
1.25 1.6887 6.9309 1.3885 1.25 1.4933 6.3986 1.2374
1.66 1.6887 6.9309 1.2900 1.66 1.4933 6.3986 1.1535
2 1.6566 6.6876 1.2093 2 1.4933 6.3986 1.0839
2.5 1.5456 5.8967 1.1109 2.5 1.4707 6.2535 0.9819
3 1.4524 5.2856 1.0333 3 1.3571 5.5471 0.8955
1995-1996 1995-1999
4 1.3360 4.5986 0.9130 4 1.2150 4.7414 0.7654
5 1.2661 4.2432 0.8160 5 1.1259 4.2993 0.6638
10 0.9860 3.2279 0.4650 10 0.9120 3.4941 0.3016
50 0.4980 2.2120 -0.7253 50 0.5962 3.0070 -1.6644
90 0.4429 2.1729 -1.6818 90 0.4489 2.9329 -3.4220
100 0.4360 2.1696 -1.9175 100 0.4261 2.9247 -3.8508
1 1.0388 5.9044 0.8645 1 2.0022 7.4985 1.7210
1.25 1.0300 5.7799 0.8212 1.25 2.0022 7.4985 1.6507
1.66 0.9819 5.1709 0.7599 1.66 1.9824 7.3271 1.5368
2 0.9532 4.8562 0.7174 2 1.9584 7.1441 1.4480
2.5 0.9253 4.5897 0.6619 2.5 1.9350 6.9948 1.3234
3 0.8737 4.1616 0.6139 3 1.8223 6.3937 1.2091
1995-1997 1995-2000
4 0.8010 3.6168 0.5394 4 1.6198 5.3917 1.0384
5 0.7575 3.3350 0.4794 5 1.4983 4.8583 0.9083
10 0.6682 2.9089 0.2451 10 1.2491 4.0219 0.4403
50 0.4206 2.3880 -1.0050 50 0.6474 3.2227 -1.9491
90 0.3922 2.3694 -2.1342 90 0.5097 3.1556 -3.9712
100 0.3857 2.3666 -2.4147 100 0.4924 3.1498 -4.4681
1 1.2405 5.9369 1.0643 1 1.3463 7.8988 1.0344
1.25 1.2405 5.9369 1.0202 1.25 1.3463 7.8988 0.9564
1.66 1.2405 5.9369 0.9480 1.66 1.2579 7.1342 0.8354
2 1.2270 5.8194 0.8883 2 1.1621 6.3509 0.7587
2.5 1.1452 5.1588 0.8126 2.5 1.0685 5.6492 0.6696
3 1.0759 4.6401 0.7530 3 1.0058 5.2263 0.5961
1995-1998 1995-2001
4 0.9893 4.0595 0.6598 4 0.9200 4.7236 0.4738
5 0.9373 3.7602 0.5839 5 0.8686 4.4719 0.3686
10 0.7899 3.1592 0.2909 10 0.6785 3.8479 -0.0618
50 0.4162 2.4711 -1.1103 50 0.2842 3.2098 -2.2916
90 0.2921 2.3917 -2.2819 90 0.2168 3.1772 -4.3257
100 0.2766 2.3848 -2.5671 100 0.2082 3.1743 -4.8300
115
A A
Period (%) (%) (%) Period (%) (%) (%)
1 1.6887 6.9309 1.4485 1 1.4933 6.3986 1.2886
1.25 1.6887 6.9309 1.3885 1.25 1.4933 6.3986 1.2374
1.66 1.6887 6.9309 1.2900 1.66 1.4933 6.3986 1.1535
2 1.6566 6.6876 1.2093 2 1.4540 6.0556 1.0873
2.5 1.5451 5.8934 1.1109 2.5 1.4090 5.7110 1.0013
3 1.4520 5.2832 1.0333 3 1.3739 5.4841 0.9228
1995-1996 1995-1999
4 1.3371 4.6050 0.9130 4 1.2264 4.6347 0.7968
5 1.2568 4.1939 0.8171 5 1.1353 4.1686 0.7009
10 0.9550 3.0545 0.4885 10 0.9517 3.4489 0.3569
50 0.3491 1.8370 -0.4945 50 0.4481 2.7033 -1.3789
90 0.2782 1.7755 -1.1404 90 0.3177 2.6275 -2.7890
100 0.2713 1.7714 -1.2976 100 0.2961 2.6188 -3.1331
1 0.7639 4.1969 0.6758 1 2.0022 7.4985 1.7210
1.25 0.7637 4.1924 0.6538 1.25 2.0022 7.4985 1.6507
1.66 0.7635 4.1889 0.6178 1.66 1.9824 7.3271 1.5368
2 0.7385 3.8515 0.5902 2 1.9584 7.1441 1.4480
2.5 0.7098 3.4994 0.5567 2.5 1.9350 6.9948 1.3234
3 0.6910 3.2959 0.5280 3 1.8200 6.3815 1.2091
1995-1997 1995-2000
4 0.6668 3.0741 0.4778 4 1.6072 5.3212 1.0409
5 0.6524 2.9672 0.4323 5 1.4769 4.7380 0.9156
10 0.6237 2.8187 0.2264 10 1.2125 3.8095 0.4869
50 0.3535 2.2378 -0.8984 50 0.6283 2.9932 -1.6115
90 0.2845 2.1906 -1.8750 90 0.4923 2.9226 -3.3515
100 0.2730 2.1851 -2.1144 100 0.4846 2.9198 -3.7781
1 1.2405 5.9369 1.0643 1 1.3463 7.8988 1.0344
1.25 1.2405 5.9369 1.0202 1.25 1.3463 7.8988 0.9564
1.66 1.2128 5.6216 0.9505 1.66 1.2522 7.0799 0.8361
2 1.1872 5.3644 0.8994 2 1.1503 6.2366 0.7614
2.5 1.1601 5.1340 0.8306 2.5 1.0497 5.4625 0.6767
3 1.0939 4.6391 0.7711 3 0.9800 4.9734 0.6090
1995-1998 1995-2001
4 1.0090 4.0708 0.6775 4 0.8890 4.4077 0.5005
5 0.9585 3.7822 0.6009 5 0.8344 4.1190 0.4102
10 0.8113 3.1938 0.3013 10 0.6633 3.4781 0.0585
50 0.3456 2.2798 -0.9538 50 0.3223 2.9428 -1.8427
90 0.2811 2.2363 -1.9693 90 0.2634 2.9116 -3.5515
100 0.2691 2.2306 -2.2187 100 0.2545 2.9085 -3.9751
116
A A
Period (%) (%) (%) Period (%) (%) (%)
1 1.3654 5.4710 1.2158 1 1.2133 4.9104 1.0927
1.25 1.3654 5.4710 1.1784 1.25 1.2133 4.9104 1.0626
1.66 1.3654 5.4710 1.1170 1.66 1.2133 4.9104 1.0132
2 1.3632 5.4497 1.0662 2 1.2133 4.9104 0.9722
2.5 1.3594 5.4175 0.9926 2.5 1.2133 4.9104 0.9119
3 1.3151 5.1136 0.9229 3 1.2114 4.8963 0.8518
1995-1996 1995-1999
4 1.1941 4.3634 0.8133 4 1.1672 4.6298 0.7385
5 1.1189 3.9568 0.7275 5 1.0966 4.2820 0.6382
10 0.8969 3.0644 0.4274 10 0.8623 3.3599 0.2979
50 0.3457 1.7365 -0.4082 50 0.3539 2.5440 -1.2641
90 0.2568 1.6564 -0.9779 90 0.2585 2.4857 -2.5219
100 0.2462 1.6506 -1.1161 100 0.2543 2.4853 -2.8341
1 0.8480 4.8098 0.7323 1 1.6045 5.7261 1.4405
1.25 0.8480 4.8098 0.7034 1.25 1.6045 5.7261 1.3995
1.66 0.8398 4.7015 0.6563 1.66 1.6045 5.7261 1.3323
2 0.8182 4.4377 0.6213 2 1.6033 5.7133 1.2769
2.5 0.7904 4.1469 0.5754 2.5 1.6033 5.7133 1.1953
3 0.7708 3.9710 0.5343 3 1.5930 5.6530 1.1137
1995-1997 1995-2000
4 0.7113 3.5144 0.4643 4 1.5176 5.2813 0.9598
5 0.6616 3.1794 0.4089 5 1.3916 4.7082 0.8374
10 0.5746 2.7399 0.1992 10 1.1139 3.6831 0.4357
50 0.2419 2.0401 -0.7985 50 0.5339 2.8393 -1.4814
90 0.1690 1.9858 -1.6055 90 0.4059 2.7733 -3.0552
100 0.1588 1.9796 -1.8007 100 0.3816 2.7403 -3.3731
1 1.0006 4.8136 0.8848 1 1.0761 6.2327 0.8819
1.25 1.0006 4.8136 0.8558 1.25 1.0743 6.2079 0.8335
1.66 1.0006 4.8136 0.8083 1.66 1.0694 6.1558 0.7549
2 0.9862 4.6560 0.7694 2 1.0561 6.0446 0.6908
2.5 0.9605 4.4047 0.7179 2.5 0.9693 5.3557 0.6108
3 0.9381 4.2178 0.6712 3 0.8958 4.8180 0.5476
1995-1998 1995-2001
4 0.8939 3.9119 0.5878 4 0.8026 4.2261 0.4454
5 0.8282 3.5107 0.5201 5 0.7517 3.9497 0.3617
10 0.7293 3.0558 0.2624 10 0.6127 3.4015 0.0342
50 0.2762 2.1545 -0.8843 50 0.2023 2.7302 -1.6612
90 0.2158 2.1126 -1.7926 90 0.1446 2.7026 -3.1421
100 0.1909 2.1010 -2.0162 100 0.1269 2.7019 -3.5233
117
Tables 5.13, 5.14, 5.15 and 5.16 represent the return and risk characteristics and investors’
utilities of the portfolios constructed using Markowitz approach in the second sub-period with
sample size of 10, 30, 50 and 70, respectively. For each sample size, 72 portfolios are
constructed with six construction periods and twelve levels of risk aversion.
As Table 5.13 shows, the returns and standard deviations of portfolios obtained at risk
aversion levels of 1, 1.25, and 1.66 for the construction period 2001-2005 are equal.
Investors’ utilities of portfolios are negative at risk aversion levels of 50, 90, and 100 for all
construction periods.
As can be seen from Table 5.14, the structures of portfolios constructed at risk aversion levels
between 1 and 2.5 for the construction period 2001-2002 are similar. The same happens for
the construction period 2001-2003 and at risk aversion of 1 and 1.25. For all construction
periods utilities of portfolios are negative at risk aversion more than 50.
From Table 5.15 it is evident that for all construction periods, once the level of risk aversion
increases, the returns, standard deviations and investors’ utilities of optimal portfolios
decrease. In addition, for the most construction periods, utilities of optimal portfolios are
negative at risk aversion levels of 50, 90, and 100.
It can be seen from Table 5.16 that for all six construction periods, investors’ utilities of
portfolios are negative at risk aversion levels of 50 and more. Surprisingly, the portfolios
obtained at risk aversions of 90 and 100, for the construction period 2001-2003 have negative
returns.
From the results of portfolios constructed in the second sub-period, it is clear that the
investors’ utilities of portfolios are negative at risk aversion levels of more than 10 for all
construction periods; therefore, construction of optimal portfolios does not have any
economic sense at risk aversion levels of 50, 90 and 100. These results are consistent with
prior empirical researches suggesting that the likely range of risk aversion is between 2 and
10.
118
Table 5.13 Results of portfolios constructed using Markowitz approach in the second
sub-period with sample size of 10
A A
Period (%) (%) (%) Period (%) (%) (%)
1 1.1232 5.3330 0.9810 1 1.6160 7.7374 1.3166
1.25 1.1076 5.0801 0.9463 1.25 1.6160 7.7374 1.2418
1.66 1.0729 4.5758 0.8991 1.66 1.6160 7.7374 1.1191
2 1.0550 4.3546 0.8654 2 1.5051 6.9072 1.0280
2.5 1.0375 4.1694 0.8202 2.5 1.3860 6.0850 0.9232
3 1.0257 4.0649 0.7779 3 1.2952 5.5106 0.8397
2001-2002 2001-2005
4 1.0111 3.9587 0.6977 4 1.1816 4.8723 0.7068
5 1.0023 3.9086 0.6204 5 1.1128 4.5436 0.5967
10 0.9732 3.8094 0.2476 10 0.8677 3.7249 0.1740
50 0.6003 3.2887 -2.1036 50 0.5543 3.1803 -1.9742
90 0.5360 3.2582 -4.2411 90 0.5195 3.1632 -3.9832
100 0.5280 3.2556 -4.7714 100 0.5152 3.1618 -4.4832
1 0.4095 3.6534 0.3427 1 1.4343 6.9711 1.1913
1.25 0.4075 3.6040 0.3263 1.25 1.4105 6.6558 1.1336
1.66 0.4055 3.5655 0.3000 1.66 1.3869 6.4025 1.0466
2 0.3989 3.4652 0.2788 2 1.3435 6.0325 0.9796
2.5 0.3886 3.3289 0.2501 2.5 1.2557 5.3373 0.8996
3 0.3818 3.2527 0.2231 3 1.1969 4.9167 0.8342
2001-2003 2001-2006
4 0.3732 3.1751 0.1716 4 1.1234 4.4595 0.7256
5 0.3656 3.1212 0.1220 5 1.0741 4.2050 0.6320
10 0.3472 3.0316 -0.1123 10 0.8793 3.4761 0.2751
50 0.2759 2.8927 -1.8161 50 0.6850 3.1238 -1.7545
90 0.2572 2.8830 -3.4830 90 0.6632 3.1129 -3.6974
100 0.2544 2.8819 -3.8984 100 0.6605 3.1120 -4.1817
1 1.4038 7.3926 1.1305 1 1.3315 7.3665 1.0601
1.25 1.3309 6.4521 1.0708 1.25 1.2938 6.8908 0.9970
1.66 1.2496 5.4972 0.9988 1.66 1.2356 6.2944 0.9068
2 1.2075 5.0572 0.9517 2 1.1791 5.7784 0.8452
2.5 1.1662 4.6760 0.8929 2.5 1.1168 5.2757 0.7689
3 1.1388 4.4559 0.8410 3 1.0644 4.8978 0.7046
2001-2004 2001-2007
4 1.1045 4.2254 0.7474 4 0.9988 4.4904 0.5955
5 1.0839 4.1142 0.6607 5 0.9532 4.2582 0.4999
10 0.9565 3.6638 0.2853 10 0.7591 3.5345 0.1345
50 0.6866 3.1936 -1.8632 50 0.5819 3.2200 -2.0103
90 0.6547 3.1782 -3.8906 90 0.5621 3.2105 -4.0761
100 0.6503 3.1767 -4.3954 100 0.5597 3.2097 -4.5913
119
A A
Period (%) (%) (%) Period (%) (%) (%)
1 1.6714 4.8175 1.5554 1 1.5901 7.3711 1.3185
1.25 1.6714 4.8175 1.5264 1.25 1.5533 6.9072 1.2551
1.66 1.6714 4.8175 1.4788 1.66 1.4646 5.9502 1.1708
2 1.6714 4.8175 1.4394 2 1.4130 5.4508 1.1159
2.5 1.6714 4.8175 1.3813 2.5 1.3603 4.9973 1.0481
3 1.6693 4.8021 1.3234 3 1.3251 4.7316 0.9892
2001-2002 2001-2005
4 1.6086 4.4263 1.2167 4 1.2751 4.4141 0.8854
5 1.5656 4.2023 1.1241 5 1.2069 4.0632 0.7942
10 1.3812 3.5837 0.7390 10 0.9831 3.1299 0.4933
50 0.4921 1.8006 -0.3184 50 0.5117 2.2192 -0.7195
90 0.3717 1.6932 -0.9184 90 0.4466 2.1722 -1.6767
100 0.3564 1.6836 -1.0608 100 0.4401 2.1691 -1.9123
1 1.1796 5.9388 1.0033 1 1.4956 5.9290 1.3198
1.25 1.1796 5.9388 0.9592 1.25 1.4705 5.5353 1.2790
1.66 1.1310 5.3385 0.8944 1.66 1.4394 5.1323 1.2208
2 1.1041 5.0538 0.8487 2 1.4192 4.9104 1.1780
2.5 1.0736 4.7745 0.7886 2.5 1.3994 4.7261 1.1202
3 1.0432 4.5378 0.7343 3 1.3829 4.5982 1.0657
2001-2003 2001-2006
4 0.9797 4.1131 0.6413 4 1.3071 4.0934 0.9720
5 0.9347 3.8619 0.5619 5 1.2447 3.7346 0.8960
10 0.7285 2.9808 0.2843 10 1.0849 3.0470 0.6207
50 0.1893 1.7780 -0.6010 50 0.7249 2.3387 -0.6425
90 0.1144 1.7110 -1.2030 90 0.6718 2.3028 -1.7146
100 0.1054 1.7054 -1.3488 100 0.6656 2.3000 -1.9794
1 1.3987 4.7546 1.2856 1 1.3618 6.0479 1.1789
1.25 1.3974 4.7306 1.2575 1.25 1.3351 5.6360 1.1365
1.66 1.3922 4.6578 1.2121 1.66 1.3086 5.2966 1.0758
2 1.3860 4.5839 1.1759 2 1.2949 5.1515 1.0295
2.5 1.3800 4.5244 1.1241 2.5 1.2669 4.9073 0.9659
3 1.3652 4.4040 1.0742 3 1.2394 4.6979 0.9084
2001-2004 2001-2007
4 1.3165 4.0808 0.9834 4 1.1633 4.2161 0.8078
5 1.2750 3.8452 0.9053 5 1.0866 3.7862 0.7282
10 1.1016 3.1371 0.6096 10 0.9252 3.0818 0.4503
50 0.5278 2.1042 -0.5792 50 0.6106 2.5001 -0.9519
90 0.4116 2.0157 -1.4167 90 0.5664 2.4719 -2.1832
100 0.3973 2.0082 -1.6190 100 0.5622 2.4701 -2.4884
120
A A
Period (%) (%) (%) Period (%) (%) (%)
1 1.7446 5.2123 1.6088 1 1.5786 7.1701 1.3216
1.25 1.7407 5.1445 1.5753 1.25 1.5409 6.6872 1.2614
1.66 1.7365 5.0874 1.5217 1.66 1.4659 5.8580 1.1811
2 1.7347 5.0680 1.4779 2 1.4150 5.3580 1.1279
2.5 1.7083 4.8372 1.4158 2.5 1.3593 4.8684 1.0631
3 1.6776 4.5982 1.3605 3 1.3219 4.5780 1.0075
2001-2002 2001-2005
4 1.6396 4.3496 1.2612 4 1.2581 4.1514 0.9134
5 1.6118 4.2049 1.1698 5 1.2201 3.9402 0.8320
10 1.3131 3.1907 0.8041 10 0.9843 3.0262 0.5264
50 0.6735 1.6242 0.0140 50 0.4688 1.9111 -0.4443
90 0.5268 1.4844 -0.4648 90 0.4003 1.8541 -1.1467
100 0.5017 1.4666 -0.5737 100 0.3908 1.8486 -1.3180
1 0.9569 5.4325 0.8094 1 1.6310 5.4674 1.4815
1.25 0.9460 5.2514 0.7736 1.25 1.6196 5.2768 1.4456
1.66 0.9274 5.0018 0.7197 1.66 1.6082 5.1232 1.3904
2 0.9038 4.7373 0.6794 2 1.6021 5.0578 1.3463
2.5 0.8736 4.4441 0.6267 2.5 1.5966 5.0086 1.2831
3 0.8523 4.2645 0.5795 3 1.5743 4.8452 1.2221
2001-2003 2001-2006
4 0.8001 3.9083 0.4946 4 1.5231 4.5289 1.1129
5 0.7237 3.4371 0.4284 5 1.4643 4.2300 1.0170
10 0.4919 2.2665 0.2350 10 1.1786 3.1458 0.6838
50 0.2262 1.4663 -0.3113 50 0.6369 1.9538 -0.3174
90 0.1211 1.3500 -0.6990 90 0.5710 1.9007 -1.0547
100 0.1004 1.3337 -0.7889 100 0.5630 1.8962 -1.2349
1 1.3975 5.2491 1.2597 1 2.1354 8.7597 1.7518
1.25 1.3926 5.1699 1.2256 1.25 2.1065 8.4828 1.6568
1.66 1.3707 4.8661 1.1741 1.66 1.9978 7.5305 1.5271
2 1.3581 4.7217 1.1352 2 1.9348 7.0583 1.4366
2.5 1.3290 4.4417 1.0823 2.5 1.8279 6.3443 1.3247
3 1.3039 4.2301 1.0355 3 1.7358 5.7896 1.2330
2001-2004 2001-2007
4 1.2705 3.9943 0.9514 4 1.6062 5.1001 1.0860
5 1.2464 3.8568 0.8746 5 1.4823 4.5242 0.9705
10 1.0503 3.0825 0.5752 10 1.1420 3.2756 0.6055
50 0.4647 1.8598 -0.4001 50 0.5749 2.1209 -0.5496
90 0.3421 1.7556 -1.0449 90 0.4918 2.0583 -1.4147
100 0.3263 1.7460 -1.1980 100 0.4828 2.0537 -1.6260
121
A A
Period (%) (%) (%) Period (%) (%) (%)
1 1.6060 4.1236 1.5209 1 1.3798 5.6032 1.2228
1.25 1.5966 3.9112 1.5010 1.25 1.3532 5.1554 1.1871
1.66 1.5872 3.7301 1.4717 1.66 1.3257 4.7702 1.1369
2 1.5817 3.6484 1.4486 2 1.3088 4.5710 1.0999
2.5 1.5773 3.5926 1.4160 2.5 1.2862 4.3474 1.0500
3 1.5750 3.5665 1.3842 3 1.2674 4.1900 1.0041
2001-2002 2001-2005
4 1.5706 3.5280 1.3217 4 1.2406 3.9974 0.9210
5 1.5606 3.4638 1.2606 5 1.2208 3.8843 0.8436
10 1.5103 3.2717 0.9751 10 1.0328 3.1801 0.5271
50 0.6487 1.7381 -0.1065 50 0.5068 2.1274 -0.6247
90 0.2942 1.4036 -0.5924 90 0.4298 2.0716 -1.5015
100 0.2670 1.3814 -0.6872 100 0.4010 2.0579 -1.7164
1 1.1047 6.0718 0.9204 1 1.4475 5.2292 1.3108
1.25 1.0773 5.6435 0.8782 1.25 1.4384 5.0708 1.2777
1.66 1.0390 5.1491 0.8190 1.66 1.4235 4.8617 1.2273
2 1.0061 4.7844 0.7772 2 1.4009 4.5963 1.1897
2.5 0.9695 4.4248 0.7247 2.5 1.3725 4.3094 1.1404
3 0.9409 4.1809 0.6787 3 1.3501 4.1133 1.0963
2001-2003 2001-2006
4 0.9128 3.9814 0.5958 4 1.3170 3.8676 1.0178
5 0.8733 3.7512 0.5215 5 1.2888 3.6976 0.9470
10 0.6661 2.8586 0.2575 10 1.1641 3.1932 0.6543
50 0.0844 1.5389 -0.5076 50 0.6276 2.1319 -0.5087
90 -0.0216 1.4309 -0.9429 90 0.5748 2.0904 -1.3916
100 -0.0295 1.4246 -1.0442 100 0.5545 2.0805 -1.6097
1 1.3560 4.4293 1.2579 1 1.2405 4.8676 1.1221
1.25 1.3516 4.3397 1.2339 1.25 1.2325 4.7143 1.0936
1.66 1.3471 4.2650 1.1962 1.66 1.2082 4.3399 1.0519
2 1.3457 4.2453 1.1655 2 1.1950 4.1704 1.0211
2.5 1.3442 4.2291 1.1206 2.5 1.1848 4.0574 0.9790
3 1.3329 4.1302 1.0770 3 1.1773 3.9863 0.9390
2001-2004 2001-2007
4 1.3068 3.9433 0.9958 4 1.1469 3.7638 0.8635
5 1.2874 3.8287 0.9209 5 1.1282 3.6550 0.7943
10 1.1166 3.1126 0.6322 10 0.9956 3.1129 0.5111
50 0.5567 2.0243 -0.4677 50 0.5525 2.2886 -0.7568
90 0.4014 1.9009 -1.2246 90 0.5001 2.2511 -1.7803
100 0.3882 1.8926 -1.4028 100 0.4855 2.2441 -2.0325
122
Tables 5.17, 5.18, 5.19 and 5.20 illustrate the results of the portfolios constructed using
Markowitz approach in the third sub-period with sample size of 10, 30, 50 and 70,
respectively. For each sample size, 72 portfolios are constructed with six construction periods
and twelve levels of risk aversion.
Table 5.17 shows the positive investors’ utility of portfolio at risk aversion of 50 for the
construction period 2005-2006. In addition, the optimal portfolios constructed at risk aversion
levels of 1 and 1.25 for the construction period 2005-2007 have the same return and risk
characteristic indicating that the structures of these portfolios are identical. Surprisingly, for
the construction period 2005-2009, portfolios obtained at risk aversion levels of 4 and 5 have
negative utilities. In 4 out of 6 construction periods, utilities are negative at risk aversion
levels of 10 and more.
As illustrated in Table 5.18, for all construction periods, by increasing the level of risk
aversion, the returns, standard deviations and investors’ utilities of optimal portfolios
decrease. For the construction period 2005-2006, portfolio obtained at risk aversion of 50
reports positive utility. For the construction periods 2005-2007 and 2005-2008, the utilities
are negative at risk aversion levels of 50, 90, and 100. Portfolios of construction period 2005-
2009 show negative utilities at risk aversion levels of 5 and more. The same happens for the
construction periods 2005-2010 and 2005-2011 at risk aversion levels of 10 and more.
From Table 5.19, it is clear that in 5 out of 6 construction periods, the investors’ utilities of
portfolios are negative at risk aversion of 50, 90, and 100. For the construction period 2005-
2006, portfolio obtained at risk aversion level of 50 reports positive utility.
It can be seen from Table 5.20 that for the construction period 2005-2006, portfolios obtained
at all levels of risk aversion have positive utilities, whereas for other construction periods,
portfolios obtained at risk aversions of 50, 90, and 100 have negative utilities.
In sum, the portfolios constructed using Markowitz approach in the third sub-period, for the
most construction periods, report negative investors’ utilities at risk aversion levels of 50, 90,
and 100. In addition, by increasing the level of risk aversion, the investors’ utilities of
portfolios decrease for all construction periods.
123
Table 5.17 Results of portfolios constructed using Markowitz approach in the third
A A
Period (%) (%) (%) Period (%) (%) (%)
1 1.4173 3.7288 1.3478 1 0.3251 4.6184 0.2185
1.25 1.4122 3.6025 1.3311 1.25 0.3187 4.4925 0.1926
1.66 1.4071 3.5023 1.3053 1.66 0.3124 4.3933 0.1522
2 1.4045 3.4606 1.2847 2 0.3092 4.3523 0.1198
2.5 1.4019 3.4270 1.2551 2.5 0.3060 4.3192 0.0728
3 1.4002 3.4086 1.2259 3 0.3006 4.2753 0.0265
2005-2006 2005-2009
4 1.3627 3.0948 1.1711 4 0.2796 4.1292 -0.0614
5 1.3190 2.7585 1.1287 5 0.2680 4.0651 -0.1452
10 1.2315 2.2326 0.9822 10 0.2340 3.9479 -0.5453
50 1.1225 1.9685 0.1538 50 0.1806 3.8632 -3.5506
90 1.0858 1.9392 -0.6065 90 0.1752 3.8611 -6.5334
100 1.0812 1.9367 -0.7943 100 0.1745 3.8609 -7.2787
1 1.2352 5.5731 1.0799 1 0.5578 5.2124 0.4220
1.25 1.2352 5.5731 1.0410 1.25 0.5406 4.9064 0.3901
1.66 1.1959 5.0912 0.9807 1.66 0.5236 4.6566 0.3436
2 1.1569 4.6505 0.9407 2 0.5147 4.5507 0.3076
2.5 1.1189 4.2667 0.8913 2.5 0.5023 4.4278 0.2572
3 1.0935 4.0429 0.8484 3 0.4818 4.2566 0.2101
2005-2007 2005-2010
4 1.0570 3.7724 0.7723 4 0.4539 4.0606 0.1241
5 1.0322 3.6214 0.7043 5 0.4372 3.9669 0.0438
10 0.9534 3.3082 0.4062 10 0.4022 3.8313 -0.3318
50 0.7308 2.9150 -1.3935 50 0.3918 3.8152 -3.2471
90 0.7017 2.8994 -3.0813 90 0.3905 3.8147 -6.1577
100 0.6981 2.8981 -3.5014 100 0.3904 3.8146 -6.8853
1 1.0714 7.0225 0.8248 1 0.5234 5.5506 0.3693
1.25 1.0676 6.9730 0.7637 1.25 0.4901 4.9824 0.3350
1.66 1.0047 6.3582 0.6692 1.66 0.4573 4.4971 0.2895
2 0.9381 5.7518 0.6073 2 0.4403 4.2840 0.2568
2.5 0.8730 5.2175 0.5327 2.5 0.4231 4.0998 0.2130
3 0.8296 4.9031 0.4690 3 0.4107 3.9871 0.1722
2005-2008 2005-2011
4 0.7378 4.3265 0.3635 4 0.3932 3.8571 0.0957
5 0.6800 4.0143 0.2771 5 0.3827 3.7955 0.0226
10 0.5623 3.5498 -0.0678 10 0.3622 3.7129 -0.3271
50 0.4468 3.3505 -2.3596 50 0.3480 3.6927 -3.0610
90 0.4332 3.3441 -4.5992 90 0.3459 3.6918 -5.7873
100 0.4315 3.3436 -5.1583 100 0.3456 3.6917 -6.4687
124
A A
Period (%) (%) (%) Period (%) (%) (%)
1 3.0015 6.2921 2.8036 1 0.6533 5.6377 0.4944
1.25 2.9897 6.1205 2.7556 1.25 0.6520 5.6175 0.4548
1.66 2.9780 5.9850 2.6807 1.66 0.6508 5.6017 0.3903
2 2.9719 5.9289 2.6204 2 0.6501 5.5952 0.3371
2.5 2.9542 5.7946 2.5345 2.5 0.6309 5.4481 0.2599
3 2.9405 5.7076 2.4519 3 0.6008 5.2415 0.1887
2005-2006 2005-2009
4 2.8284 5.1154 2.3051 4 0.5182 4.7732 0.0626
5 2.7498 4.7570 2.1841 5 0.4544 4.4621 -0.0434
10 2.4351 3.6833 1.7567 10 0.3210 3.9923 -0.4759
50 1.5784 2.2372 0.3272 50 0.0901 3.6803 -3.2960
90 1.3929 2.1051 -0.6012 90 0.0522 3.6642 -5.9898
100 1.3720 2.0946 -0.8216 100 0.0471 3.6628 -6.6609
1 1.6362 7.0324 1.3889 1 0.8905 6.2083 0.6978
1.25 1.5772 6.2315 1.3345 1.25 0.8653 5.8350 0.6525
1.66 1.5189 5.5373 1.2644 1.66 0.8198 5.2735 0.5890
2 1.4845 5.1871 1.2155 2 0.7892 4.9432 0.5448
2.5 1.4399 4.7838 1.1538 2.5 0.7589 4.6600 0.4875
3 1.4101 4.5502 1.0996 3 0.7388 4.4984 0.4352
2005-2007 2005-2010
4 1.3729 4.3051 1.0023 4 0.7012 4.2483 0.3403
5 1.3328 4.0955 0.9134 5 0.6786 4.1267 0.2529
10 1.1718 3.4935 0.5616 10 0.6147 3.9034 -0.1472
50 0.7121 2.7838 -1.2252 50 0.4821 3.7091 -2.9572
90 0.6214 2.7335 -2.7409 90 0.4597 3.6998 -5.7002
100 0.6070 2.7279 -3.1136 100 0.4567 3.6990 -6.3844
1 1.3810 6.4210 1.1748 1 0.9037 6.1105 0.7170
1.25 1.3617 6.1615 1.1244 1.25 0.8946 5.9753 0.6715
1.66 1.3099 5.5441 1.0548 1.66 0.8739 5.7441 0.6001
2 1.2792 5.2290 1.0057 2 0.8320 5.3270 0.5483
2.5 1.2475 4.9494 0.9413 2.5 0.7858 4.9246 0.4827
3 1.2262 4.7893 0.8822 3 0.7496 4.6469 0.4257
2005-2008 2005-2011
4 1.1817 4.5145 0.7741 4 0.6993 4.3208 0.3259
5 1.1427 4.3178 0.6766 5 0.6603 4.1148 0.2370
10 1.0359 3.9378 0.2606 10 0.5588 3.7405 -0.1408
50 0.5165 3.1502 -1.9644 50 0.4174 3.5189 -2.6783
90 0.4389 3.1117 -3.9181 90 0.3976 3.5103 -5.1474
100 0.4292 3.1084 -4.4017 100 0.3943 3.5093 -5.7633
125
A A
Period (%) (%) (%) Period (%) (%) (%)
1 3.1963 7.6246 2.9056 1 0.6734 5.2060 0.5379
1.25 3.1963 7.6246 2.8330 1.25 0.6489 4.7634 0.5071
1.66 3.1779 7.4720 2.7145 1.66 0.6246 4.3911 0.4645
2 3.1365 7.1602 2.6238 2 0.6120 4.2299 0.4330
2.5 3.0453 6.5765 2.5046 2.5 0.5989 4.0891 0.3898
3 2.9551 6.0526 2.4055 3 0.5832 3.9460 0.3496
2005-2006 2005-2009
4 2.8423 5.4822 2.2412 4 0.5247 3.4948 0.2804
5 2.7199 4.9623 2.1043 5 0.4754 3.1625 0.2254
10 2.3491 3.7131 1.6597 10 0.3747 2.6425 0.0256
50 1.3895 1.8413 0.5419 50 0.2763 2.4107 -1.1766
90 1.1928 1.6617 -0.0497 90 0.2630 2.4020 -2.3333
100 1.1512 1.6335 -0.1829 100 0.2614 2.4013 -2.6217
1 1.7237 7.3929 1.4504 1 0.9464 6.1260 0.7587
1.25 1.6604 6.5763 1.3901 1.25 0.9142 5.6446 0.7150
1.66 1.5889 5.7608 1.3134 1.66 0.8550 4.8612 0.6589
2 1.5464 5.3381 1.2614 2 0.8159 4.3965 0.6226
2.5 1.5028 4.9562 1.1957 2.5 0.7764 3.9721 0.5792
3 1.4748 4.7438 1.1372 3 0.7479 3.7017 0.5424
2005-2007 2005-2010
4 1.4386 4.5154 1.0308 4 0.7014 3.3158 0.4815
5 1.3704 4.1712 0.9354 5 0.6729 3.1162 0.4301
10 1.1055 3.1288 0.6161 10 0.5811 2.6687 0.2250
50 0.6701 2.1211 -0.4547 50 0.4596 2.3593 -0.9319
90 0.6469 2.1039 -1.3450 90 0.4482 2.3516 -2.0404
100 0.6437 2.1022 -1.5659 100 0.4467 2.3510 -2.3168
1 1.4554 6.5796 1.2389 1 0.8879 5.7931 0.7201
1.25 1.4368 6.3205 1.1871 1.25 0.8639 5.4278 0.6798
1.66 1.3879 5.7625 1.1123 1.66 0.8073 4.6390 0.6287
2 1.3585 5.4740 1.0589 2 0.7716 4.1937 0.5957
2.5 1.3298 5.2329 0.9875 2.5 0.7341 3.7712 0.5563
3 1.3005 5.0256 0.9217 3 0.7066 3.4939 0.5235
2005-2008 2005-2011
4 1.1907 4.3501 0.8122 4 0.6713 3.1860 0.4682
5 1.1191 3.9620 0.7266 5 0.6467 3.0078 0.4205
10 0.9208 3.1603 0.4215 10 0.5676 2.6147 0.2258
50 0.4964 2.2895 -0.8141 50 0.4333 2.2804 -0.8668
90 0.4610 2.2652 -1.8481 90 0.4197 2.2711 -1.9012
100 0.4588 2.2642 -2.1045 100 0.4179 2.2702 -2.1590
126
A A
Period (%) (%) (%) Period (%) (%) (%)
1 2.6550 4.8258 2.5385 1 0.6975 5.5366 0.5443
1.25 2.6447 4.6357 2.5104 1.25 0.6948 5.4922 0.5063
1.66 2.6341 4.4724 2.4681 1.66 0.6510 4.9347 0.4489
2 2.6256 4.3660 2.4350 2 0.6107 4.4618 0.4117
2.5 2.6196 4.3045 2.3880 2.5 0.5700 4.0262 0.3674
3 2.6141 4.2596 2.3419 3 0.5408 3.7480 0.3301
2005-2006 2005-2009
4 2.5775 4.0141 2.2552 4 0.5067 3.4732 0.2655
5 2.5522 3.8711 2.1775 5 0.4620 3.1702 0.2107
10 2.3700 3.1890 1.8615 10 0.3721 2.7347 -0.0019
50 1.6284 1.7623 0.8520 50 0.2505 2.4563 -1.2578
90 1.3874 1.5256 0.3401 90 0.2265 2.4410 -2.4549
100 1.3583 1.4975 0.2371 100 0.2265 2.4410 -2.7528
1 1.6608 5.0191 1.5349 1 1.0024 6.4675 0.7933
1.25 1.6566 4.9471 1.5037 1.25 0.9789 6.1379 0.7434
1.66 1.6525 4.8908 1.4540 1.66 0.9264 5.4978 0.6756
2 1.6504 4.8688 1.4134 2 0.8938 5.1556 0.6280
2.5 1.6483 4.8509 1.3542 2.5 0.8244 4.5080 0.5704
3 1.6296 4.7162 1.2960 3 0.7771 4.1028 0.5246
2005-2007 2005-2010
4 1.5451 4.1522 1.2003 4 0.7166 3.6453 0.4508
5 1.4929 3.8493 1.1225 5 0.6711 3.3455 0.3912
10 1.3524 3.2562 0.8223 10 0.5439 2.7326 0.1706
50 0.7780 2.2193 -0.4533 50 0.4116 2.3837 -1.0089
90 0.6541 2.1305 -1.3885 90 0.4027 2.3785 -2.1430
100 0.6520 2.1295 -1.6153 100 0.3990 2.3774 -2.4269
1 1.3335 5.6426 1.1743 1 0.8380 5.0274 0.7116
1.25 1.3177 5.3796 1.1368 1.25 0.8333 4.9404 0.6807
1.66 1.2927 5.0520 1.0808 1.66 0.8194 4.7373 0.6332
2 1.2750 4.8573 1.0391 2 0.8076 4.5994 0.5960
2.5 1.2583 4.6967 0.9826 2.5 0.7623 4.1342 0.5487
3 1.2458 4.5955 0.9290 3 0.7275 3.8073 0.5101
2005-2008 2005-2011
4 1.1710 4.1045 0.8341 4 0.6726 3.3532 0.4477
5 1.1270 3.8550 0.7554 5 0.6410 3.1312 0.3959
10 0.9433 3.0584 0.4756 10 0.5464 2.6434 0.1970
50 0.5438 2.2530 -0.7252 50 0.4144 2.2976 -0.9053
90 0.4928 2.2175 -1.7199 90 0.3987 2.2871 -1.9552
100 0.4705 2.2073 -1.9656 100 0.3987 2.2871 -2.2167
127
5.5.3 Portfolios Constructed Using Sharpe Approach
As mentioned earlier, in order to construct optimal portfolios by the Sharpe approach we
calculate excess return to Beta ratio for all stocks in each sample, rank them from highest to
lowest, and find the cutoff rate. The optimal portfolio consists of all stocks which have excess
return to Beta ratio greater than the cutoff rate. The process of construction of optimal
portfolios using Sharpe model does not involve risk aversion factor since the optimum
portfolio is not based on the utility function. We construct twenty four portfolios in each sub-
period with the same six construction periods and sample size of 10, 30, 50, and 70 used in
previous section. The sample size indicates number of stocks that are candidates for
investment. Tables 5.21, 5.22, and 5.23 show the returns and standard deviations of the
portfolios constructed using Sharpe approach in the first, second, and third sub-periods,
respectively.
Table 5.21 Results of portfolios constructed using Sharpe approach in the first sub-period
Construction Period Sample size Return (%) Std Dev (%)
1995-1996 10 0.6879 4.1943

1995-1997 10 0.6347 4.3883
1995-1998 10 0.2769 4.9268
1995-1999 10 0.3254 6.0036
1995-2000 10 0.8632 7.4324
1995-2001 10 0.6209 7.8416
1995-1996 30 1.1571 3.8065
1995-1997 30 0.8045 3.6232
1995-1998 30 0.9179 3.6702
1995-1999 30 1.0321 3.9076
1995-2000 30 1.7624 6.1796
1995-2001 30 1.2148 6.8533
1995-1996 50 1.1104 3.5676
1995-1997 50 0.6735 3.0995
1995-1998 50 0.9545 3.7516
1995-1999 50 1.1206 4.1343
1995-2000 50 1.5886 5.4334
1995-2001 50 1.0273 5.4691
1995-1996 70 1.0957 3.5789
1995-1997 70 0.8051 3.6261
1995-1998 70 0.9522 3.7173
1995-1999 70 1.2283 4.4445
1995-2000 70 1.7028 5.7542
1995-2001 70 1.0919 5.9490
128
Table 5.22 Results of portfolios constructed Table 5.23 Results of portfolios constructed
using Sharpe approach in the using Sharpe approach in the
second sub-period third sub-period
Construction Sample Return Std Dev Construction Sample Return Std Dev
Period size (%) (%) Period size (%) (%)
2001-2002 10 1.0114 3.9856 2005-2006 10 1.1423 2.0209
2001-2003 10 0.3925 3.4376 2005-2007 10 0.9687 3.3477
2001-2004 10 1.0463 3.9853 2005-2008 10 0.8467 5.0225
2001-2005 10 1.0991 4.5819 2005-2009 10 0.3340 4.8547
2001-2006 10 1.0083 3.9752 2005-2010 10 0.5182 4.5846
2001-2007 10 0.9483 4.2802 2005-2011 10 0.4587 4.5146
2001-2002 30 1.3701 3.7454 2005-2006 30 2.0642 3.0175
2001-2003 30 0.8096 3.4261 2005-2007 30 1.2223 3.6954
2001-2004 30 1.1495 3.4572 2005-2008 30 1.1221 4.2603
2001-2005 30 1.0359 3.4268 2005-2009 30 0.6499 5.5804
2001-2006 30 1.0767 3.0841 2005-2010 30 0.7545 4.6655
2001-2007 30 0.9774 3.3352 2005-2011 30 0.7676 4.8483
2001-2002 50 1.2260 3.3414 2005-2006 50 1.5772 2.1610
2001-2003 50 0.7448 3.7924 2005-2007 50 1.0609 3.0217
2001-2004 50 1.0796 3.3902 2005-2008 50 1.0072 3.4908
2001-2005 50 1.0301 3.3015 2005-2009 50 0.5306 3.5620
2001-2006 50 1.1732 3.1984 2005-2010 50 0.6169 2.8481
2001-2007 50 1.1234 3.3244 2005-2011 50 0.6081 2.7919
2001-2002 70 1.4962 3.4488 2005-2006 70 1.7771 2.1464
2001-2003 70 0.8305 3.7375 2005-2007 70 1.3585 3.2350
2001-2004 70 1.0926 3.2402 2005-2008 70 1.0731 3.4931
2001-2005 70 1.0691 3.4722 2005-2009 70 0.6006 4.1140
2001-2006 70 1.1888 3.3823 2005-2010 70 0.6720 3.3316
2001-2007 70 1.0135 3.2712 2005-2011 70 0.6415 3.0988
5.5.4 Comparison of Markowitz and Sharpe Approaches

In order to compare the Markowitz and Sharpe approaches, the portfolios obtained using
Markowitz approach at risk aversion levels of 2, 3, and 4 are considered and their
performances one year following their construction are compared to those of Sharpe
approach. The details of portfolios used for comparison of Markowitz and Sharpe approaches
in each sub-period are given before the corresponding analysis part. The details have been
serially numbered in order to save the space in comparison tables.
5.5.4.1 Comparison of Portfolios Constructed in the First Sub-Period 1995-2002
In this section, the results of portfolios constructed using Markowitz and Sharpe approaches
in the first sub-period are analysed. Table 5.24 shows the details of portfolios used for
comparison of Markowitz and Sharpe approaches in the first sub-period.
129
Table 5.24 Details of portfolios used for comparison of Markowitz and Sharpe approaches in
the first sub-period
portfolios constructed using

portfolios constructed using Markowitz approach
Sharpe approach
1 2 1 2 1 2
1 1996-1997 -N=10 (A=2) 37 1996-1997 -N=50 (A=2) 1 1996-1997 -N=10
2 1996-1997 -N=10 (A=3) 38 1996-1997 -N=50 (A=3) 2 1997-1998 -N=10
3 1996-1997 -N=10 (A=4) 39 1996-1997 -N=50 (A=4) 3 1998-1999 -N=10
4 1997-1998 -N=10 (A=2) 40 1997-1998 -N=50 (A=2) 4 1999-2000 -N=10
5 1997-1998 -N=10 (A=3) 41 1997-1998 -N=50 (A=3) 5 2000-2001 -N=10
6 1997-1998 -N=10 (A=4) 42 1997-1998 -N=50 (A=4) 6 2001-2002 -N=10
7 1998-1999 -N=10 (A=2) 43 1998-1999 -N=50 (A=2) 7 1996-1997 -N=30
8 1998-1999 -N=10 (A=3) 44 1998-1999 -N=50 (A=3) 8 1997-1998 -N=30
9 1998-1999 -N=10 (A=4) 45 1998-1999 -N=50 (A=4) 9 1998-1999 -N=30
10 1999-2000 -N=10 (A=2) 46 1999-2000 -N=50 (A=2) 10 1999-2000 -N=30
11 1999-2000 -N=10 (A=3) 47 1999-2000 -N=50 (A=3) 11 2000-2001 -N=30
12 1999-2000 -N=10 (A=4) 48 1999-2000 -N=50 (A=4) 12 2001-2002 -N=30
13 2000-2001 -N=10 (A=2) 49 2000-2001 -N=50 (A=2) 13 1996-1997 -N=50
14 2000-2001 -N=10 (A=3) 50 2000-2001 -N=50 (A=3) 14 1997-1998 -N=50
15 2000-2001 -N=10 (A=4) 51 2000-2001 -N=50 (A=4) 15 1998-1999 -N=50
16 2001-2002 -N=10 (A=2) 52 2001-2002 -N=50 (A=2) 16 1999-2000 -N=50
17 2001-2002 -N=10 (A=3) 53 2001-2002 -N=50 (A=3) 17 2000-2001 -N=50
18 2001-2002 -N=10 (A=4) 54 2001-2002 -N=50 (A=4) 18 2001-2002 -N=50
19 1996-1997 -N=30 (A=2) 55 1996-1997 -N=70 (A=2) 19 1996-1997 -N=70
20 1996-1997 -N=30 (A=3) 56 1996-1997 -N=70 (A=3) 20 1997-1998 -N=70
21 1996-1997 -N=30 (A=4) 57 1996-1997 -N=70 (A=4) 21 1998-1999 -N=70
22 1997-1998 -N=30 (A=2) 58 1997-1998 -N=70 (A=2) 22 1999-2000 -N=70
23 1997-1998 -N=30 (A=3) 59 1997-1998 -N=70 (A=3) 23 2000-2001 -N=70
24 1997-1998 -N=30 (A=4) 60 1997-1998 -N=70 (A=4) 24 2001-2002 -N=70
25 1998-1999 -N=30 (A=2) 61 1998-1999 -N=70 (A=2)
26 1998-1999 -N=30 (A=3) 62 1998-1999 -N=70 (A=3)
27 1998-1999 -N=30 (A=4) 63 1998-1999 -N=70 (A=4)
28 1999-2000 -N=30 (A=2) 64 1999-2000 -N=70 (A=2)
29 1999-2000 -N=30 (A=3) 65 1999-2000 -N=70 (A=3)
30 1999-2000 -N=30 (A=4) 66 1999-2000 -N=70 (A=4)
31 2000-2001 -N=30 (A=2) 67 2000-2001 -N=70 (A=2)
32 2000-2001 -N=30 (A=3) 68 2000-2001 -N=70 (A=3)
33 2000-2001 -N=30 (A=4) 69 2000-2001 -N=70 (A=4)
34 2001-2002 -N=30 (A=2) 70 2001-2002 -N=70 (A=2)
35 2001-2002 -N=30 (A=3) 71 2001-2002 -N=70 (A=3)
36 2001-2002 -N=30 (A=4) 72 2001-2002 -N=70 (A=4)
Note: In the above table the first column is the portfolio numbers, the second column contains the holding
period (e.g. year 1996-1997); N and A denote sample size and level of risk aversion, respectively.
130
5.5.4.1.1 Analyses of Returns, Betas and Standard Deviations of Portfolios
Tables 5.25, 5.26 and 5.27 show the returns, Betas, and standard deviations of portfolios
constructed using two approaches, respectively. From Table 5.25 it is evident that the returns
of portfolios constructed using Markowitz approach have higher average value and variation
(0.461%, 1.450%) than those of Sharpe approach (0.292%, 1.351%). The t-value of
difference between the means of two series of returns is 0.503 and corresponding p-value is
0.616. As can be seen from Table 5.26, portfolios constructed using Sharpe approach show
higher average Beta (1.015) than those constructed using Markowitz approach (0.982). The t-
value of difference between the means of two series of Betas is -0.320 and corresponding p-
value is 0.750. As shown in Table 5.27, portfolios constructed using Sharpe approach report
higher average standard deviation (5.815%) than those constructed using Markowitz
approach (5.715%). The t-value of difference between the means of two series of standard
deviations is -0.209 and corresponding p-value is 0.835. These results indicate that returns,
Betas, and standard deviations of portfolios are not significantly different at five percent level
of significance.
131
Table 5.25 Returns of portfolios in the first sub-period
Return (%) Return (%)
Serial No. Markowitz Sharpe Serial No. Markowitz Sharpe
1 0.566 0.540 42 0.763
2 0.471 -0.442 43 2.122
3 0.388 -0.364 44 1.864
4 -0.442 3.054 45 1.623
5 -0.425 -0.564 46 3.797
6 -0.400 0.397 47 3.252
7 -0.159 -0.759 48 2.564
8 -0.074 0.514 49 -2.031
9 -0.149 1.107 50 -2.015
10 1.307 1.879 51 -1.717
11 0.991 -2.212 52 0.008
12 0.833 -0.133 53 0.127
13 -0.804 -0.551 54 0.151
14 -0.974 0.845 55 0.024
15 -1.007 1.470 56 0.018
16 0.344 1.819 57 -0.180
17 0.246 -1.900 58 0.125
18 0.196 0.216 59 0.238
19 0.127 -0.556 60 0.302
20 -0.128 0.513 61 1.695
21 -0.340 1.565 62 1.651
22 0.313 2.369 63 1.536
23 0.437 -2.067 64 3.078
24 0.478 0.268 65 3.096
25 2.205 66 2.791
26 1.711 67 -1.663
27 1.448 68 -1.635
28 4.073 69 -1.611
29 3.458 70 0.021
30 2.816 71 0.122
31 -2.031 72 0.202
32 -2.020 p-value of F-test 0.364
33 -1.743 Mean 0.461 0.292
34 -0.121 Standard Deviation 1.450 1.351
35 -0.084 t-Statistic 0.503
36 -0.063 p-value of t-test 0.616
37 0.127
38 -0.128
39 -0.329
40 0.948
41 0.827
132
Table 5.26 Betas of portfolios in the first sub-period
Beta Beta
1 0.656 0.655 42 0.663
2 0.651 1.001 43 0.901
3 0.647 1.288 44 0.879
4 1.001 0.703 45 0.848
5 0.995 1.098 46 0.838
6 0.987 0.619 47 0.743
7 1.120 0.683 48 0.687
8 1.028 0.700 49 1.802
9 0.932 0.810 50 1.732
10 0.866 0.697 51 1.549
11 0.879 1.756 52 1.847
12 0.886 2.008 53 1.498
13 1.135 0.659 54 1.305
14 1.071 0.675 55 0.437
15 0.995 0.832 56 0.478
16 0.588 0.649 57 0.570
17 0.579 1.495 58 0.768
18 0.576 1.508 59 0.714
19 0.327 0.661 60 0.713
20 0.506 0.701 61 0.904
21 0.588 0.881 62 0.903
22 0.753 0.752 63 0.883
23 0.721 1.666 64 0.916
24 0.718 1.854 65 0.915
25 0.887 66 0.853
26 0.821 67 1.582
27 0.787 68 1.575
28 0.887 69 1.524
29 0.822 70 1.863
30 0.755 71 1.533
31 1.802 72 1.333
32 1.741 p-value of F-test 0.305
33 1.599 Mean 0.982 1.015
34 1.907 Standard Deviation 0.418 0.451
35 1.620 t-Statistic -0.320
36 1.464 p-value of t-test 0.750
37 0.327
38 0.507
39 0.585
40 0.611
41 0.646
133
Table 5.27 Standard Deviations of portfolios in the first sub-period
Standard Deviation (%) Standard Deviation (%)
1 4.442 4.277 42 3.216
2 3.976 5.856 43 6.829
3 3.688 7.781 44 5.769
4 5.856 11.250 45 4.902
5 5.518 9.625 46 9.733
6 5.139 5.029 47 8.249
7 5.522 3.538 48 5.877
8 5.032 3.370 49 8.949
9 4.649 4.497 50 8.279
10 6.438 4.316 51 6.996
11 5.785 8.385 52 8.217
12 5.520 9.042 53 6.410
13 8.336 3.277 54 5.485
14 7.047 3.369 55 3.065
15 6.148 4.441 56 2.998
16 3.966 4.584 57 2.936
17 3.352 7.088 58 3.919
18 3.194 6.641 59 3.485
19 3.658 3.276 60 3.130
20 3.265 3.374 61 5.973
21 3.289 4.717 62 5.513
22 4.328 6.065 63 5.102
23 3.758 7.640 64 7.862
24 3.343 8.136 65 7.877
25 7.399 66 7.003
26 5.740 67 7.255
27 4.900 68 7.210
28 10.621 69 6.813
29 8.206 70 8.207
30 6.034 71 6.464
31 8.949 72 5.494
33 7.212 Mean 5.715 5.815
35 6.998 t-Statistic -0.209
37 3.658
38 3.265
39 3.268
40 4.266
41 3.477
134
5.5.4.1.2 Analyses of Reward to Variability Ratios (Sharpe Ratios) of portfolios
Tables 5.28 and 5.29 display the reward to variability ratios (Sharpe ratios) and excess of the
Sharpe ratios over the reward to variability ratios of the market (benchmark) of portfolios
constructed using two approaches, respectively. As can be seen from Table 5.28, the Sharpe
ratios of portfolios constructed using Markowitz approach have higher average value (0.040)
than those of Sharpe approach (0.030). The t-value for difference between the means of two
series of Sharpe ratio is 0.203 and corresponding p-value is 0.840, implying that the
difference is not significant at five percent level of significance. Table 5.29 shows that t-value
and p-value for two series of excess of Sharpe ratios over the benchmarks are 0.272 and
0.786, respectively. These results imply that the difference is not significant at five percent
level of significance.
5.5.4.1.3 Analyses of Reward to Volatility Ratios (Treynor Ratios) of Portfolios
Tables 5.30 and 5.31 illustrate reward to volatility ratios (Treynor ratios) and excess of
Treynor ratios over the reward to volatility ratios of the market (benchmark) of portfolios
constructed using two approaches, respectively. Table 5.30 shows that the portfolios obtained
by Markowitz approach have higher mean value of Treynor ratio (0.477%) than those
constructed using Sharpe approach (0.373%). The t-test for the difference between these two
series of Treynor ratios shows that the p-value is 0.772 implying that there is no significant
difference between these two Treynor ratio series at five percent level of significance. As can
be seen from table 5.31, two series of excess of Treynor ratios over the benchmarks show
mean values of 0.629% and 0.525% for Markowitz and Sharpe approaches, respectively.
These results indicate portfolios obtained by Markowitz approach have performed better than
those obtained by Sharpe approach. However the p-value of 0.725 of the t-test implies that
the difference is not significant at five percent level of significance.
135
Table 5.28 Sharpe ratios of portfolios in the first sub-period
RVARp RVARp
1 0.076 0.073 42 0.176
2 0.061 -0.109 43 0.281
3 0.043 -0.073 44 0.287
4 -0.109 0.253 45 0.289
5 -0.113 -0.079 46 0.369
6 -0.116 0.047 47 0.369
7 -0.066 -0.280 48 0.401
8 -0.056 0.094 49 -0.249
9 -0.076 0.200 50 -0.267
10 0.171 0.388 51 -0.273
11 0.136 -0.287 52 -0.018
12 0.114 -0.032 53 -0.005
13 -0.120 -0.238 54 -0.001
14 -0.166 0.192 55 -0.067
15 -0.195 0.285 56 -0.071
16 0.047 0.352 57 -0.140
17 0.026 -0.295 58 -0.019
18 0.012 0.009 59 0.012
19 -0.028 -0.240 60 0.034
20 -0.109 0.094 61 0.249
21 -0.173 0.288 62 0.262
22 0.027 0.357 63 0.261
23 0.064 -0.296 64 0.365
24 0.084 0.013 65 0.367
25 0.270 66 0.369
26 0.262 67 -0.256
27 0.253 68 -0.254
28 0.364 69 -0.265
29 0.396 70 -0.017
30 0.433 71 -0.006
31 -0.249 72 0.008
32 -0.266 p-value of F-test 0.225
33 -0.269 Mean 0.040 0.030
35 -0.035 t-Statistic 0.203
36 -0.036 p-value of t-test 0.840
37 -0.028
38 -0.110
39 -0.171
40 0.176
41 0.181
Note: RVARp represents reward to variability ratio of the portfolio (Sharpe ratio)
136
Table 5.29 Excess of the Sharpe ratios over the reward to variability ratios of the market in
RVARp - RVARm RVARp - RVARm
1 0.101 0.098 42 0.193
2 0.086 -0.092 43 0.377
3 0.068 0.023 44 0.384
4 -0.092 0.102 45 0.385
5 -0.096 0.122 46 0.218
6 -0.099 0.098 47 0.218
7 0.030 -0.254 48 0.250
8 0.041 0.111 49 -0.048
9 0.020 0.297 50 -0.066
10 0.020 0.237 51 -0.073
11 -0.015 -0.086 52 0.032
12 -0.037 0.018 53 0.045
13 0.081 -0.213 54 0.049
14 0.035 0.209 55 -0.042
15 0.005 0.381 56 -0.045
16 0.097 0.201 57 -0.114
17 0.076 -0.095 58 -0.002
18 0.062 0.059 59 0.028
19 -0.003 -0.215 60 0.050
20 -0.084 0.110 61 0.346
21 -0.148 0.384 62 0.358
22 0.043 0.206 63 0.357
23 0.080 -0.095 64 0.214
24 0.101 0.064 65 0.216
25 0.366 66 0.218
26 0.359 67 -0.055
27 0.350 68 -0.053
28 0.213 69 -0.064
29 0.245 70 0.033
30 0.282 71 0.044
31 -0.048 72 0.058
32 -0.066 p-value of F-test 0.137
33 -0.068 Mean 0.079 0.070
35 0.015 t-Statistic 0.272
37 -0.003
Note: RVARp represents reward to variability ratio of the
38 -0.084 portfolio (Sharpe ratio), RVARm denotes reward to
39 -0.146 variability ratio of the market and RVARp - RVARm
40 0.193 represents excess of the Sharpe ratio over the reward to
variability ratio of the market
41 0.198
137
Table 5.30 Treynor ratios of portfolios in the first sub-period
RVOLp (%) RVOLp (%)
1 0.512 0.474 42 0.853
2 0.370 -0.638 43 2.126
3 0.244 -0.443 44 1.886
4 -0.638 4.056 45 1.671
5 -0.625 -0.690 46 4.288
6 -0.605 0.385 47 4.101
7 -0.326 -1.447 48 3.435
8 -0.273 0.452 49 -1.235
9 -0.381 1.112 50 -1.275
10 1.273 2.402 51 -1.234
11 0.893 -1.370 52 -0.081
12 0.708 -0.145 53 -0.021
13 -0.880 -1.184 54 -0.006
14 -1.091 0.961 55 -0.472
15 -1.207 1.520 56 -0.443
16 0.315 2.487 57 -0.720
17 0.151 -1.401 58 -0.094
18 0.065 0.039 59 0.057
19 -0.316 -1.190 60 0.147
20 -0.706 0.450 61 1.647
21 -0.968 1.542 62 1.600
22 0.154 2.879 63 1.506
23 0.332 -1.357 64 3.137
24 0.392 0.059 65 3.160
25 2.253 66 3.031
26 1.833 67 -1.174
27 1.577 68 -1.161
28 4.361 69 -1.184
29 3.955 70 -0.074
30 3.458 71 -0.024
31 -1.235 72 0.033
32 -1.272 p-value of F-test 0.507
33 -1.211 Mean 0.477 0.373
35 -0.150 t-Statistic 0.291
36 -0.152 p-value of t-test 0.772
37 -0.316
38 -0.706
39 -0.955
40 1.228
41 0.975
Note: RVOLp represents reward to volatility ratio of the portfolio (Treynor ratio)
138
Table 5.31 Excess of the Treynor ratios over the reward to volatility ratios of the market in
RVOLp - RVOLm (%) RVOLp - RVOLm (%)
1 0.605 0.567 42 0.906
2 0.463 -0.586 43 2.507
3 0.338 -0.062 44 2.267
4 -0.586 3.468 45 2.052
5 -0.572 0.092 46 3.700
6 -0.552 0.575 47 3.514
7 0.055 -1.354 48 2.848
8 0.108 0.505 49 -0.453
9 0.000 1.493 50 -0.493
10 0.686 1.815 51 -0.452
11 0.306 -0.588 52 0.109
12 0.121 0.045 53 0.169
13 -0.098 -1.091 54 0.184
14 -0.309 1.013 55 -0.379
15 -0.424 1.901 56 -0.350
16 0.505 1.900 57 -0.627
17 0.341 -0.619 58 -0.042
18 0.255 0.228 59 0.110
19 -0.222 -1.096 60 0.200
20 -0.613 0.503 61 2.028
21 -0.875 1.923 62 1.981
22 0.206 2.292 63 1.887
23 0.385 -0.575 64 2.549
24 0.444 0.249 65 2.573
25 2.634 66 2.444
26 2.214 67 -0.392
27 1.958 68 -0.379
28 3.774 69 -0.402
29 3.368 70 0.116
30 2.871 71 0.166
31 -0.453 72 0.223
32 -0.490 p-value of F-test 0.469
33 -0.429 Mean 0.629 0.525
35 0.040 t-Statistic 0.353
37 -0.222
Note: RVOLp represents reward to volatility ratio of the
38 -0.613 portfolio (Treynor ratio), RVOLm denotes reward to
39 -0.862 volatility ratio of the market and RVOLp - RVOLm
40 1.281 represents excess of the Treynor ratio over the reward to
volatility ratio of the market
41 1.027
139
5.5.4.1.4 Analyses of Jensen Measures (Alphas), the Net Returns Due to Selectivity
(Fama Measures) and M2 Measures of Portfolios
Tables 5.32, 5.33 and 5.34 represent Jensen measures (Alphas), the net returns due to
selectivity (Fama measures) and M2 measures of portfolios constructed using two approaches,
respectively. It can be seen from Table 5.32 that Alphas of portfolios constructed using
Markowitz approach have higher average value (0.493) than those of Sharpe approach
(0.346). These results indicate superior performance of the portfolios constructed using
Markowitz approach in comparison to those constructed using Sharpe approach. Nevertheless
from the p-value of 0.561, it can be inferred that the difference between two series of Alphas
is not significant at five percent level of significance. Table 5.33 shows that the Fama
measures of portfolios constructed using Markowitz approach have higher average value
(0.497%) than those of Sharpe approach (0.375%). These results indicate that Markowitz
portfolios have earned more returns because of selection ability of the portfolio manager.
Although the results show different average value of Fama measures for portfolios
constructed using two approaches; but the p-value of 0.566 of t-test implies that the
difference is not significant at five percent level of significance. Table 5.34 shows that
Markowitz approach yields higher average M2 measure (0.353%) than that of the Sharpe
approach (0.314%). The p-value for the difference of means is 0.837. From this it can be
concluded that the difference between the averages of M2 measures in two approaches is not
significant at five percent level of significance.
Altogether, from the above results we infer that there is no statistical difference between
performances of portfolios (risk-return characteristics and risk-adjusted performance
measures) constructed using two approaches at five percent level of significance in the first
sub-period.
140
Table 5.32 Jensen measures (Alphas) of portfolios in the first sub-period
Jensen Measure (%) Jensen Measure (%)
1 0.397 0.371 42 0.601
2 0.301 -0.586 43 2.259
3 0.218 -0.080 44 1.993
4 -0.586 2.437 45 1.740
5 -0.569 0.101 46 3.100
6 -0.545 0.356 47 2.611
7 0.061 -0.925 48 1.956
8 0.111 0.353 49 -0.815
9 0.000 1.209 50 -0.854
10 0.594 1.265 51 -0.700
11 0.269 -1.033 52 0.201
12 0.107 0.090 53 0.253
13 -0.111 -0.719 54 0.240
14 -0.331 0.684 55 -0.166
15 -0.422 1.581 56 -0.167
16 0.297 1.233 57 -0.357
17 0.197 -0.925 58 -0.032
18 0.147 0.344 59 0.078
19 -0.073 -0.725 60 0.143
20 -0.310 0.352 61 1.833
21 -0.515 1.694 62 1.788
22 0.155 1.723 63 1.666
23 0.277 -0.958 64 2.335
24 0.319 0.462 65 2.354
25 2.337 66 2.085
26 1.818 67 -0.620
27 1.542 68 -0.597
28 3.347 69 -0.612
29 2.770 70 0.216
30 2.167 71 0.255
31 -0.815 72 0.297
32 -0.852 p-value of F-test 0.305
33 -0.686 Mean 0.493 0.346
35 0.065 t-Statistic 0.584
37 -0.073
38 -0.311
39 -0.504
40 0.783
41 0.664
141
Table 5.33 Fama measures of portfolios in the first sub-period
Fama Measure (%) Fama Measure (%)
1 0.449 0.419 42 0.619
2 0.342 -0.541 43 2.574
3 0.252 0.179 44 2.214
4 -0.541 1.150 45 1.889
5 -0.530 1.173 46 2.122
6 -0.511 0.491 47 1.802
7 0.167 -0.899 48 1.471
8 0.204 0.373 49 -0.429
9 0.093 1.334 50 -0.548
10 0.130 1.022 51 -0.507
11 -0.088 -0.724 52 0.262
12 -0.206 0.162 53 0.290
13 0.674 -0.697 54 0.267
14 0.246 0.705 55 -0.128
15 0.032 1.692 56 -0.135
16 0.384 0.922 57 -0.335
17 0.255 -0.672 58 -0.007
18 0.198 0.391 59 0.099
19 -0.010 -0.703 60 0.157
20 -0.274 0.372 61 2.064
21 -0.486 1.813 62 1.976
22 0.188 1.248 63 1.821
23 0.302 -0.728 64 1.685
24 0.337 0.518 65 1.702
25 2.712 66 1.529
26 2.058 67 -0.401
27 1.714 68 -0.383
28 2.264 69 -0.438
29 2.013 70 0.274
30 1.700 71 0.288
31 -0.429 72 0.319
32 -0.546 p-value of F-test 0.297
33 -0.491 Mean 0.497 0.375
35 0.108 t-Statistic 0.575
37 -0.010
38 -0.275
39 -0.476
40 0.822
41 0.688
142
Table 5.34 M² measures of portfolios in the first sub-period
M² measure (%) M² measure (%)
1 0.507 0.495 42 0.750
2 0.452 -0.146 43 1.316
3 0.387 -0.084 44 1.342
4 -0.146 1.190 45 1.349
5 -0.157 -0.113 46 1.640
6 -0.168 0.338 47 1.642
7 -0.055 -0.794 48 1.766
8 -0.014 0.492 49 -0.775
9 -0.096 0.998 50 -0.846
10 0.871 1.713 51 -0.871
11 0.733 -0.925 52 0.089
12 0.647 0.036 53 0.140
13 -0.273 -0.643 54 0.153
14 -0.452 0.802 55 -0.017
15 -0.568 1.332 56 -0.029
16 0.335 1.574 57 -0.282
17 0.257 -0.958 58 0.139
18 0.203 0.192 59 0.234
19 0.127 -0.649 60 0.303
20 -0.171 0.491 61 1.192
21 -0.404 1.345 62 1.242
22 0.281 1.593 63 1.237
23 0.397 -0.960 64 1.626
24 0.462 0.210 65 1.632
25 1.274 66 1.641
26 1.243 67 -0.804
27 1.208 68 -0.795
28 1.621 69 -0.839
29 1.746 70 0.095
30 1.888 71 0.137
31 -0.775 72 0.188
32 -0.844 p-value of F-test 0.249
33 -0.853 Mean 0.353 0.314
35 0.027 t-Statistic 0.207
37 0.127
38 -0.172
39 -0.396
40 0.750
41 0.766
143
5.5.4.2 Comparison of Portfolios Constructed in the Second Sub-Period 2001-2008
in the second sub-period are analysed. Table 5.35 shows the details of portfolios used for
comparison of Markowitz and Sharpe approaches in the second sub-period.
constructed using two approaches, respectively. As can be seen from Table 5.36, the returns
of portfolios constructed using Markowitz approach have higher average value and variation
(0.748%, 0.650%) than those of Sharpe approach (0.723%, 0.602%). The t-value of
difference between the means of two series of returns is 0.165 and corresponding p-value is
0.869, implying that the difference is not significant at five percent level of significance.
Table 5.37 shows that portfolios constructed using Markowitz approach have higher average
Beta (1.068) than those constructed using Sharpe approach (0.969). The t-value of difference
between the means of two series of Betas is 2.092 and corresponding p-value is 0.039,
therefore, at five percent level of significance two series of Betas are statistically different.
From Table 5.38 it is clear that the standard deviations of portfolios constructed using
Markowitz approach have higher average value (4.604%) than those of Sharpe approach
(3.801%,). The t-value of difference between the means of two series of standard deviations
is 4.633 and corresponding p-value is 1.65×10-5. Therefore, two series of standard deviations
are statistically different even at less than one percent level of significance.
144
the second sub-period
Sharpe approach
1 2 1 2 1 2
1 2002-2003 -N=10 (A=2) 37 2002-2003 -N=50 (A=2) 1 2002-2003 -N=10
2 2002-2003 -N=10 (A=3) 38 2002-2003 -N=50 (A=3) 2 2003-2004 -N=10
3 2002-2003 -N=10 (A=4) 39 2002-2003 -N=50 (A=4) 3 2004-2005 -N=10
4 2003-2004 -N=10 (A=2) 40 2003-2004 -N=50 (A=2) 4 2005-2006 -N=10
5 2003-2004 -N=10 (A=3) 41 2003-2004 -N=50 (A=3) 5 2006-2007 -N=10
6 2003-2004 -N=10 (A=4) 42 2003-2004 -N=50 (A=4) 6 2007-2008 -N=10
7 2004-2005 -N=10 (A=2) 43 2004-2005 -N=50 (A=2) 7 2002-2003 -N=30
8 2004-2005 -N=10 (A=3) 44 2004-2005 -N=50 (A=3) 8 2003-2004 -N=30
9 2004-2005 -N=10 (A=4) 45 2004-2005 -N=50 (A=4) 9 2004-2005 -N=30
10 2005-2006 -N=10 (A=2) 46 2005-2006 -N=50 (A=2) 10 2005-2006 -N=30
11 2005-2006 -N=10 (A=3) 47 2005-2006 -N=50 (A=3) 11 2006-2007 -N=30
12 2005-2006 -N=10 (A=4) 48 2005-2006 -N=50 (A=4) 12 2007-2008 -N=30
13 2006-2007 -N=10 (A=2) 49 2006-2007 -N=50 (A=2) 13 2002-2003-N=50
14 2006-2007 -N=10 (A=3) 50 2006-2007-N=50 (A=3) 14 2003-2004 -N=50
15 2006-2007 -N=10 (A=4) 51 2006-2007 -N=50 (A=4) 15 2004-2005 -N=50
16 2007-2008 -N=10 (A=2) 52 2007-2008 -N=50 (A=2) 16 2005-2006 -N=50
17 2007-2008 -N=10 (A=3) 53 2007-2008 -N=50 (A=3) 17 2006-2007 -N=50
18 2007-2008 -N=10 (A=4) 54 2007-2008 -N=50 (A=4) 18 2007-2008 -N=50
19 2002-2003 -N=30 (A=2) 55 2002-2003 -N=70 (A=2) 19 2002-2003 -N=70
20 2002-2003 -N=30 (A=3) 56 2002-2003 -N=70 (A=3) 20 2003-2004 -N=70
21 2002-2003 -N=30 (A=4) 57 2002-2003-N=70 (A=4) 21 2004-2005 -N=70
22 2003-2004 -N=30 (A=2) 58 2003-2004 -N=70 (A=2) 22 2005-2006 -N=70
23 2003-2004 -N=30 (A=3) 59 2003-2004 -N=70 (A=3) 23 2006-2007 -N=70
24 2003-2004 -N=30 (A=4) 60 2003-2004 -N=70 (A=4) 24 2007-2008 -N=70
25 2004-2005 -N=30 (A=2) 61 2004-2005 -N=70 (A=2)
26 2004-2005 -N=30 (A=3) 62 2004-2005 -N=70 (A=3)
27 2004-2005 -N=30 (A=4) 63 2004-2005 -N=70 (A=4)
28 2005-2006 -N=30 (A=2) 64 2005-2006 -N=70 (A=2)
29 2005-2006 -N=30 (A=3) 65 2005-2006 -N=70 (A=3)
30 2005-2006 -N=30 (A=4) 66 2005-2006 -N=70 (A=4)
31 2006-2007 -N=30 (A=2) 67 2006-2007 -N=70 (A=2)
32 2006-2007 -N=30 (A=3) 68 2006-2007 -N=70 (A=3)
33 2006-2007 -N=30 (A=4) 69 2006-2007 -N=70 (A=4)
34 2007-2008 -N=30 (A=2) 70 2007-2008 -N=70 (A=2)
35 2007-2008 -N=30 (A=3) 71 2007-2008 -N=70 (A=3)
36 2007-2008 -N=30 (A=4) 72 2007-2008 -N=70 (A=4)
Note: In the above table the first column is the portfolio serial numbers, the second column contains the holding
145
Table 5.36 Returns of portfolios in the second sub-period
1 -0.259 -0.200 42 1.620
2 -0.227 1.477 43 0.902
3 -0.211 0.814 44 0.812
4 1.387 0.986 45 0.755
5 1.475 0.326 46 1.643
6 1.520 0.975 47 1.657
7 1.312 0.167 48 1.548
8 1.049 1.568 49 1.777
9 0.918 0.510 50 1.758
10 0.880 1.030 51 1.617
11 0.916 0.304 52 0.873
12 0.951 0.229 53 0.856
13 0.488 -0.211 54 0.839
14 0.423 1.648 55 -0.145
15 0.392 0.671 56 -0.193
16 1.090 1.476 57 -0.229
17 1.039 0.739 58 1.765
18 0.986 0.675 59 1.811
19 -0.084 -0.126 60 1.801
20 -0.071 1.801 61 0.503
21 -0.022 0.562 62 0.495
22 0.840 1.358 63 0.478
23 1.034 0.162 64 0.937
24 1.154 0.411 65 0.995
25 0.531 66 1.025
26 0.493 67 -0.095
27 0.400 68 0.062
28 1.176 69 0.167
29 1.188 70 0.415
30 1.156 71 0.510
31 0.590 72 0.492
33 0.416 Mean 0.748 0.723
35 0.582 t-Statistic 0.165
37 -0.715
38 -0.592
39 -0.500
40 1.630
41 1.664
146
Table 5.37 Betas of portfolios in the second sub-period
Beta Beta
1 0.944 0.841 42 0.875
2 0.882 1.290 43 1.449
3 0.851 1.364 44 1.326
4 1.259 1.007 45 1.260
5 1.213 1.249 46 1.027
6 1.190 1.144 47 0.940
7 1.484 0.840 48 0.849
8 1.428 0.849 49 1.218
9 1.401 1.224 50 1.211
10 1.065 0.734 51 1.176
11 1.018 1.015 52 1.541
12 1.009 0.710 53 1.383
13 1.289 0.853 54 1.286
14 1.262 0.828 55 1.063
15 1.248 1.181 56 1.031
16 1.142 0.752 57 1.013
17 1.153 0.915 58 0.733
18 1.141 0.972 59 0.785
19 0.608 0.954 60 0.793
20 0.612 0.803 61 1.158
21 0.686 1.057 62 1.155
22 0.988 0.873 63 1.117
23 1.004 0.985 64 0.982
24 0.978 0.819 65 0.968
25 1.320 66 0.955
26 1.308 67 1.155
27 1.251 68 1.093
28 0.876 69 1.052
29 0.827 70 0.957
30 0.785 71 0.997
31 1.259 72 0.962
33 1.147 Mean 1.068 0.969
35 0.897 t-Statistic 2.092
37 1.011
38 0.964
39 0.930
40 1.058
41 0.951
147
Table 5.38 Standard Deviations of portfolios in the second sub-period
1 3.884 3.562 42 3.742
2 3.494 4.882 43 5.104
3 3.340 4.593 44 4.578
4 4.980 3.862 45 4.320
5 4.657 4.525 46 4.776
6 4.528 5.016 47 4.224
7 5.641 3.318 48 3.747
8 5.107 4.188 49 8.029
9 4.879 4.324 50 7.703
10 5.717 2.791 51 7.058
11 4.615 3.774 52 7.847
12 4.124 3.370 53 6.684
13 5.841 3.064 54 6.018
14 5.056 3.721 55 3.460
15 4.758 3.926 56 3.368
16 5.453 2.761 57 3.330
17 5.257 3.965 58 3.493
18 5.115 4.235 59 3.672
19 4.389 3.417 60 3.713
20 4.314 3.901 61 4.199
21 3.909 3.727 62 4.222
22 5.229 3.027 63 4.018
23 4.837 3.673 64 3.375
24 4.461 3.614 65 3.168
25 4.780 66 3.084
26 4.703 67 4.480
27 4.416 68 4.122
28 4.691 69 3.950
29 4.054 70 4.362
30 3.730 71 4.456
31 5.525 72 4.281
33 4.684 Mean 4.604 3.801
35 4.298 t-Statistic 4.633
36 4.039 p-value of t-test 1.650E-05
37 4.185
38 3.964
39 3.897
40 4.688
41 4.085
148
constructed using two approaches, respectively. As shown in Table 5.39, the Sharpe ratios of
portfolios constructed using Sharpe approach have higher average value (0.158) than those of
Markowitz approach (0.133). The t-value for the difference between the means of two series
of Sharpe ratios is -0.668 and corresponding p-value is 0.506, implying that the difference is
not significant at five percent level of significance. As can be seen from Table 5.40, t-value
and p-value for two series of excess of Sharpe ratios over the benchmarks are -1.300 and
0.197, respectively. These results imply that the difference is not significant at five percent
level of significance.
constructed using two approaches, respectively. As Table 5.41 shows the Treynor ratios of
portfolios constructed using Sharpe approach have higher average value (0.644) than those of
Markowitz approach (0.590). The p-value of 0.743 of t-test implies that the difference is not
significant at five percent level of significance. From table 5.42 it is evident that two series of
excess of Treynor ratios over the benchmarks have mean values of 0.242% and 0.297% for
Markowitz and Sharpe approaches, respectively. These results indicate that the portfolios
constructed using Sharpe approach have performed better than benchmarks. Nevertheless
from the p-value of 0.550, it can be inferred that the difference between two series of excess
of Treynor ratios over the benchmarks is not significant at five percent level of significance.
149
Table 5.39 Sharpe ratios of portfolios in the second sub-period
RVARp RVARp
1 -0.100 -0.092 42 0.405
2 -0.102 0.281 43 0.154
3 -0.102 0.152 44 0.152
4 0.257 0.222 45 0.148
5 0.294 0.041 46 0.317
6 0.313 0.165 47 0.362
7 0.212 0.012 48 0.379
8 0.183 0.349 49 0.204
9 0.165 0.091 50 0.210
10 0.131 0.323 51 0.209
11 0.171 0.043 52 0.093
12 0.199 0.025 53 0.106
13 0.060 -0.111 54 0.115
14 0.056 0.415 55 -0.079
15 0.053 0.141 56 -0.095
16 0.173 0.488 57 -0.107
17 0.170 0.151 58 0.475
18 0.164 0.125 59 0.465
19 -0.049 -0.074 60 0.457
20 -0.046 0.435 61 0.092
21 -0.039 0.120 62 0.090
22 0.141 0.406 63 0.090
23 0.192 0.006 64 0.240
24 0.235 0.074 65 0.274
25 0.087 66 0.291
26 0.080 67 -0.053
27 0.064 68 -0.019
28 0.223 69 0.007
29 0.261 70 0.062
30 0.276 71 0.082
31 0.081 72 0.081
33 0.059 Mean 0.133 0.158
35 0.102 t-Statistic -0.668
37 -0.202
38 -0.182
39 -0.161
40 0.325
41 0.382
150
1 0.055 0.063 42 0.086
2 0.053 -0.038 43 0.100
3 0.053 0.098 44 0.098
4 -0.062 -0.123 45 0.094
5 -0.025 -0.004 46 -0.028
6 -0.007 0.078 47 0.017
7 0.158 0.167 48 0.034
8 0.129 0.030 49 0.159
9 0.111 0.037 50 0.165
10 -0.213 -0.022 51 0.164
11 -0.174 -0.002 52 0.005
12 -0.145 -0.063 53 0.019
13 0.014 0.044 54 0.028
14 0.011 0.096 55 0.076
15 0.008 0.088 56 0.060
16 0.086 0.143 57 0.048
17 0.082 0.106 58 0.156
18 0.077 0.037 59 0.145
19 0.106 0.081 60 0.138
20 0.109 0.116 61 0.038
21 0.116 0.066 62 0.036
22 -0.179 0.061 63 0.037
23 -0.127 -0.039 64 -0.105
24 -0.084 -0.014 65 -0.071
25 0.033 66 -0.054
26 0.026 67 -0.098
27 0.011 68 -0.064
28 -0.122 69 -0.039
29 -0.084 70 -0.026
30 -0.069 71 -0.006
31 0.036 72 -0.007
33 0.014 Mean 0.017 0.042
35 0.014 t-Statistic -1.300
36 -0.007 p-value of t-test 0.197
37 -0.046
41 0.062
151
Table 5.41 Treynor ratios of portfolios in the second sub-period
RVOLp (%) RVOLp (%)
1 -0.411 -0.391 42 1.733
2 -0.404 1.063 43 0.543
3 -0.400 0.512 44 0.525
4 1.019 0.852 45 0.508
5 1.130 0.149 46 1.475
6 1.190 0.725 47 1.627
7 0.806 0.046 48 1.672
8 0.654 1.723 49 1.344
9 0.573 0.323 50 1.335
10 0.705 1.228 51 1.256
11 0.774 0.161 52 0.472
12 0.815 0.118 53 0.514
13 0.270 -0.398 54 0.540
14 0.225 1.865 55 -0.258
15 0.201 0.470 56 -0.312
16 0.827 1.792 57 -0.353
17 0.775 0.654 58 2.267
18 0.738 0.545 59 2.173
19 -0.351 -0.267 60 2.141
20 -0.327 2.114 61 0.334
21 -0.220 0.423 62 0.329
22 0.744 1.407 63 0.325
23 0.926 0.022 64 0.824
24 1.073 0.325 65 0.896
25 0.315 66 0.939
26 0.289 67 -0.204
27 0.227 68 -0.071
28 1.195 69 0.025
29 1.282 70 0.282
30 1.310 71 0.366
31 0.357 72 0.361
33 0.240 Mean 0.590 0.644
35 0.486 t-Statistic -0.329
37 -0.835
38 -0.747
39 -0.676
40 1.442
41 1.640
152
1 -0.050 -0.029 42 0.759
2 -0.042 0.090 43 0.384
3 -0.038 0.352 44 0.366
4 0.045 0.040 45 0.348
5 0.157 0.000 46 0.663
6 0.216 0.375 47 0.814
7 0.647 0.407 48 0.859
8 0.495 0.750 49 1.195
9 0.414 0.163 50 1.187
10 -0.107 0.415 51 1.107
11 -0.039 0.013 52 0.122
12 0.003 -0.233 53 0.164
13 0.121 -0.036 54 0.189
14 0.076 0.891 55 0.104
15 0.053 0.311 56 0.050
16 0.477 0.979 57 0.008
17 0.425 0.506 58 1.293
18 0.387 0.195 59 1.199
19 0.011 0.095 60 1.167
20 0.035 1.140 61 0.175
21 0.141 0.264 62 0.169
22 -0.230 0.595 63 0.166
23 -0.048 -0.126 64 0.011
24 0.100 -0.025 65 0.083
25 0.156 66 0.126
26 0.130 67 -0.352
27 0.068 68 -0.220
28 0.383 69 -0.124
29 0.469 70 -0.069
30 0.497 71 0.015
31 0.208 72 0.010
33 0.091 Mean 0.242 0.297
35 0.136 t-Statistic -0.600
37 -0.473
41 0.667
153
respectively. As shown in Table 5.43, the p-value of F-test conducted to test equality of
variances is 0.054 implying that the variances of the two series of Alphas are equal.
Therefore, we use t-test assuming equal variances. But when the level of significance is equal
to ten percent, the variances of the two samples cannot be assumed to be equal and it should
be considered to use the t-test assuming unequal variances. It can be seen that portfolios
constructed using Sharpe approach have higher average Alpha (0.271%) than those
constructed using Markowitz approach (0.258%). The t-value of difference between the
means of two series of Alphas is -0.140 and corresponding p-value is 0.889, so at five percent
level of significance two series of Alphas are not significantly different. However, when level
of significance is considered at ten percent, t-test assuming unequal variances is conducted.
The t-test for the difference between the means of two series of Alphas shows that the p-value
is 0.872 implying that the difference is not significant. Table 5.44 shows the positive average
values of Fama measures for two series indicating that both the series of portfolios have
earned superior returns because of selectivity on the part of the portfolio manager. These
positive values reveal that the portfolios have offered the advantages of proficiency of
selectivity to the investors. It can be seen that portfolios constructed using Sharpe approach
report higher average Fama measure (0.155%) than those constructed using Markowitz
approach (0.092%). The t-value of difference between the means of two series of Fama
measures is -0.848 and corresponding p-value is 0.399 implying that the difference is not
significant at five percent level of significance. From Table 5.45 it is evident that portfolios
obtained by Sharpe approach report higher average M2 measure (0.591%) than those
constructed using Markowitz approach (0.532%). The t-value for difference between the
means of two series of M2 measures is -0.572 and corresponding p-value is 0.569, implying
that the difference is not significant at five percent level of significance.
In sum, from the above results we infer that except in risk parameters (Betas and standard
deviations) in all other parameters of portfolio performance, there is no statistical difference
between the two approaches at five percent level of significance in the second sub-period. In
terms of risks, the averages of series in two approaches show significant difference and the
series of portfolios constructed using Markowitz approach report higher average risk. In order
to reduce the risk of portfolios constructed using Markowitz approach, two adjustments are
154
available. The first one is decreasing the upper bound, that is, instead of having weight
constraint for each security up to one (0 ≤ wi ≤ 1) in the portfolio, to have lower upper bound,
as Cohen and Pogue (1967) concluded that the single index model provides an appropriate
approximation to the Markowitz approach when an upper bound equals to 0.05. Affleck-
Graves and Money (1976) demonstrated that lower upper bound leads to more shares being
included in portfolios (i.e. more diversification), consequently less risk. The second
adjustment is applying the higher levels of risk aversion. Hanna and Lindamood (2004) found
that 76% to 78% of the potential investors accepted the risk aversion levels between 2 and 10.
Zhao (2011) mentioned that prior empirical researches suggested that the likely range of risk
aversion is between 2 and 10. The results of section 5.5.2 support the second adjustment.
From Tables of section 5.5.2 it is evident that by applying the higher levels of risk aversion,
the risks of portfolios constructed using Markowitz approach are reduced. In this study, the
three levels of risk aversion, namely, 2, 3, and 4 are considered for comparison of two
approaches; so by comparing Markowitz portfolios constructed at higher levels of risk
aversion with Sharpe portfolios, the difference between the average risks of two series of
portfolios constructed using two approaches may not be significant.
155
Table 5.43 Jensen measures (Alphas) of portfolios in the second sub-period
1 -0.047 -0.024 42 0.664
2 -0.037 0.116 43 0.556
3 -0.032 0.481 44 0.485
4 0.057 0.040 45 0.439
5 0.190 0.001 46 0.680
6 0.257 0.429 47 0.765
7 0.960 0.342 48 0.730
8 0.706 0.637 49 1.456
9 0.580 0.200 50 1.438
10 -0.114 0.305 51 1.302
11 -0.039 0.013 52 0.187
12 0.003 -0.165 53 0.226
13 0.157 -0.031 54 0.243
14 0.096 0.738 55 0.110
15 0.066 0.367 56 0.051
16 0.544 0.736 57 0.008
17 0.490 0.463 58 0.947
18 0.441 0.189 59 0.942
19 0.007 0.090 60 0.925
20 0.021 0.915 61 0.203
21 0.097 0.278 62 0.196
22 -0.227 0.520 63 0.185
23 -0.048 -0.125 64 0.011
24 0.097 -0.021 65 0.080
25 0.205 66 0.121
26 0.169 67 -0.407
27 0.085 68 -0.241
28 0.336 69 -0.130
29 0.388 70 -0.066
30 0.390 71 0.015
31 0.262 72 0.010
33 0.105 Mean 0.258 0.271
35 0.122 when α=5%
36 0.026 t-Statistic -0.140
37 -0.478 p-value of t-test 0.889
38 -0.372 when α=10%
39 -0.293 t-Statistic -0.162
41 0.634
156
Table 5.44 Fama measures of portfolios in the second sub-period
1 0.214 0.224 42 0.320
2 0.186 -0.187 43 0.512
3 0.178 0.451 44 0.450
4 -0.308 -0.474 45 0.407
5 -0.116 -0.019 46 -0.132
6 -0.031 0.390 47 0.072
7 0.892 0.553 48 0.127
8 0.659 0.126 49 1.273
9 0.540 0.162 50 1.269
10 -1.220 -0.061 51 1.157
11 -0.804 -0.007 52 0.039
12 -0.600 -0.212 53 0.125
13 0.084 0.136 54 0.166
14 0.054 0.356 55 0.263
15 0.036 0.344 56 0.201
16 0.466 0.395 57 0.159
17 0.433 0.419 58 0.545
18 0.393 0.159 59 0.533
19 0.467 0.275 60 0.511
20 0.469 0.451 61 0.161
21 0.455 0.246 62 0.152
22 -0.935 0.185 63 0.147
23 -0.616 -0.144 64 -0.355
24 -0.376 -0.051 65 -0.226
25 0.158 66 -0.167
26 0.124 67 -0.438
27 0.047 68 -0.265
28 -0.570 69 -0.152
29 -0.339 70 -0.113
30 -0.258 71 -0.026
31 0.200 72 -0.028
33 0.063 Mean 0.092 0.155
35 0.060 t-Statistic -0.848
36 -0.028 p-value of t-test 0.399
37 -0.194
38 -0.106
39 -0.025
40 0.029
41 0.255
157
Table 5.45 M² measures of portfolios in the second sub-period
1 -0.104 -0.086 42 1.339
2 -0.109 0.961 43 0.571
3 -0.109 0.565 44 0.565
4 0.889 0.652 45 0.553
5 1.002 0.275 46 0.876
6 1.057 0.806 47 0.981
7 0.743 0.156 48 1.021
8 0.656 1.170 49 0.810
9 0.602 0.385 50 0.830
10 0.438 0.889 51 0.827
11 0.530 0.283 52 0.516
12 0.598 0.244 53 0.570
13 0.336 -0.129 54 0.606
14 0.324 1.369 55 -0.056
15 0.314 0.534 56 -0.094
16 0.838 1.278 57 -0.122
17 0.825 0.636 58 1.554
18 0.802 0.645 59 1.521
19 0.015 -0.045 60 1.498
20 0.021 1.431 61 0.388
21 0.039 0.470 62 0.381
22 0.533 1.085 63 0.383
23 0.690 0.160 64 0.693
24 0.821 0.440 65 0.773
25 0.373 66 0.813
26 0.353 67 -0.032
27 0.306 68 0.078
28 0.654 69 0.162
29 0.744 70 0.392
30 0.778 71 0.472
31 0.408 72 0.469
33 0.333 Mean 0.532 0.591
35 0.551 t-Statistic -0.572
37 -0.341
38 -0.295
39 -0.248
40 1.097
41 1.268
158
5.5.4.3 Comparison of Portfolios Constructed in the Third Sub-Period 2005-2012
in the third sub-period are analysed. Table 5.46 shows the details of portfolios used for
comparison of Markowitz and Sharpe approaches in the third sub-period.
constructed using two approaches, respectively. From table 5.47 it is evident that the returns
of portfolios constructed using Sharpe approach have higher average value (0.089%) and
lesser variation (0.817%) than those of Markowitz approach (0.031%, 0.844%). The t-value
of difference between the means of two series of returns is -0.294 and corresponding p-value
is 0.769. As can be seen from Table 5.48, portfolios constructed using Markowitz approach
show higher average Beta (0.938) than those constructed using Sharpe approach (0.856). The
t-value of difference between the means of two series of Betas is 1.461 and corresponding p-
value is 0.147. As shown in Table 5.49, in spite of lower average return, portfolios
constructed using Markowitz approach report higher average standard deviation (4.609%)
than those constructed using Sharpe approach (3.987%). The t-value of difference between
the means of two series of standard deviations is 1.498 and corresponding p-value is 0.137.
These results indicate that returns, Betas and standard deviations of portfolios are not
significantly different at five percent level of significance.
159
the third sub-period
Sharpe approach
1 2 1 2 1 2
1 2006-2007 -N=10 (A=2) 37 2006-2007 -N=50 (A=2) 1 2006-2007 -N=10
2 2006-2007 -N=10 (A=3) 38 2006-2007 -N=50 (A=3) 2 2007-2008 -N=10
3 2006-2007 -N=10 (A=4) 39 2006-2007 -N=50 (A=4) 3 2008-2009 -N=10
4 2007-2008 -N=10 (A=2) 40 2007-2008 -N=50 (A=2) 4 2009-2010 -N=10
5 2007-2008 -N=10 (A=3) 41 2007-2008 -N=50 (A=3) 5 2010-2011 -N=10
6 2007-2008 -N=10 (A=4) 42 2007-2008 -N=50 (A=4) 6 2011-2012 -N=10
7 2008-2009 -N=10 (A=2) 43 2008-2009 -N=50 (A=2) 7 2006-2007 -N=30
8 2008-2009 -N=10 (A=3) 44 2008-2009 -N=50 (A=3) 8 2007-2008 -N=30
9 2008-2009 -N=10 (A=4) 45 2008-2009 -N=50 (A=4) 9 2008-2009 -N=30
10 2009-2010 -N=10 (A=2) 46 2009-2010 -N=50 (A=2) 10 2009-2010 -N=30
11 2009-2010 -N=10 (A=3) 47 2009-2010 -N=50 (A=3) 11 2010-2011 -N=30
12 2009-2010 -N=10 (A=4) 48 2009-2010 -N=50 (A=4) 12 2011-2012 -N=30
13 2010-2011 -N=10 (A=2) 49 2010-2011 -N=50 (A=2) 13 2006-2007 -N=50
14 2010-2011 -N=10 (A=3) 50 2010-2011 -N=50 (A=3) 14 2007-2008 -N=50
15 2010-2011 -N=10 (A=4) 51 2010-2011 -N=50 (A=4) 15 2008-2009 -N=50
16 2011-2012 -N=10 (A=2) 52 2011-2012 -N=50 (A=2) 16 2009-2010 -N=50
17 2011-2012 -N=10 (A=3) 53 2011-2012 -N=50 (A=3) 17 2010-2011 -N=50
18 2011-2012 -N=10 (A=4) 54 2011-2012 -N=50 (A=4) 18 2011-2012 -N=50
19 2006-2007 -N=30 (A=2) 55 2006-2007 -N=70 (A=2) 19 2006-2007 -N=70
20 2006-2007 -N=30 (A=3) 56 2006-2007 -N=70 (A=3) 20 2007-2008 -N=70
21 2006-2007 -N=30 (A=4) 57 2006-2007 -N=70 (A=4) 21 2008-2009 -N=70
22 2007-2008 -N=30 (A=2) 58 2007-2008 -N=70 (A=2) 22 2009-2010 -N=70
23 2007-2008 -N=30 (A=3) 59 2007-2008 -N=70 (A=3) 23 2010-2011 -N=70
24 2007-2008 -N=30 (A=4) 60 2007-2008 -N=70 (A=4) 24 2011-2012 -N=70
25 2008-2009 -N=30 (A=2) 61 2008-2009 -N=70 (A=2)
26 2008-2009 -N=30 (A=3) 62 2008-2009 -N=70 (A=3)
27 2008-2009 -N=30 (A=4) 63 2008-2009 -N=70 (A=4)
28 2009-2010 -N=30 (A=2) 64 2009-2010 -N=70 (A=2)
29 2009-2010 -N=30 (A=3) 65 2009-2010 -N=70 (A=3)
30 2009-2010 -N=30 (A=4) 66 2009-2010 -N=70 (A=4)
31 2010-2011 -N=30 (A=2) 67 2010-2011 -N=70 (A=2)
32 2010-2011 -N=30 (A=3) 68 2010-2011 -N=70 (A=3)
33 2010-2011 -N=30 (A=4) 69 2010-2011 -N=70 (A=4)
34 2011-2012 -N=30 (A=2) 70 2011-2012 -N=70 (A=2)
35 2011-2012 -N=30 (A=3) 71 2011-2012 -N=70 (A=3)
36 2011-2012 -N=30 (A=4) 72 2011-2012 -N=70 (A=4)
Note: In the above table the first column is the portfolio serial numbers, the second column contains the holding
160
Table 5.47 Returns of portfolios in the third sub-period
1 0.439 0.344 42 0.361
2 0.390 0.059 43 -1.757
3 0.389 -1.179 44 -1.625
4 0.473 1.156 45 -1.536
5 0.324 0.004 46 1.132
6 0.237 -0.057 47 1.118
7 -1.327 -0.043 48 1.112
8 -1.101 0.654 49 0.111
9 -1.007 -1.976 50 0.183
10 1.064 1.231 51 0.249
11 1.060 0.278 52 0.350
12 1.064 0.073 53 0.401
13 0.005 0.129 54 0.425
14 0.020 0.145 55 0.454
15 0.060 -1.369 56 0.361
16 -0.100 1.291 57 0.307
17 -0.144 0.335 58 0.025
18 -0.160 0.395 59 0.021
19 -0.050 -0.062 60 0.087
20 -0.023 0.273 61 -1.533
21 -0.116 -1.238 62 -1.512
22 0.176 1.017 63 -1.367
23 0.377 0.485 64 1.013
24 0.478 0.185 65 0.870
25 -2.197 66 0.841
26 -2.060 67 0.258
27 -1.968 68 0.350
28 1.211 69 0.392
29 1.200 70 0.064
30 1.351 71 0.152
31 0.368 72 0.193
33 0.223 Mean 0.031 0.089
35 0.041 t-Statistic -0.294
37 -0.729
38 -0.481
39 -0.305
40 0.690
41 0.472
161
Table 5.48 Betas of portfolios in the third sub-period
βp βp
1 1.008 0.819 42 1.286
2 1.007 1.119 43 1.267
3 0.976 1.260 44 1.245
4 1.580 0.997 45 1.106
5 1.366 0.800 46 0.705
6 1.267 0.929 47 0.581
7 1.456 1.135 48 0.494
8 1.203 1.159 49 0.811
9 1.098 1.102 50 0.723
10 0.817 0.880 51 0.681
11 0.772 0.743 52 0.544
12 0.744 0.845 53 0.428
13 0.793 0.810 54 0.369
14 0.770 0.872 55 0.946
15 0.763 0.900 56 0.992
16 0.895 0.539 57 0.987
17 0.877 0.600 58 0.874
18 0.863 0.297 59 0.882
19 1.015 0.944 60 0.896
20 1.031 0.870 61 1.181
21 1.073 0.904 62 1.143
22 1.128 0.823 63 1.063
23 1.172 0.730 64 0.932
24 1.194 0.472 65 0.776
25 1.148 66 0.695
26 1.114 67 0.855
27 1.104 68 0.809
28 0.876 69 0.772
29 0.853 70 0.814
30 0.824 71 0.679
31 0.766 72 0.583
33 0.776 Mean 0.938 0.856
35 0.791 t-Statistic 1.461
37 1.047
38 1.122
39 1.159
40 1.253
41 1.274
162
Table 5.49 Standard Deviations of portfolios in the third sub-period
1 4.709 3.808 42 6.003
2 4.723 5.398 43 8.023
3 4.481 7.754 44 7.695
4 7.621 4.509 45 6.912
5 6.613 2.977 46 3.429
6 6.155 3.390 47 3.018
7 8.936 4.406 48 2.638
8 7.555 5.293 49 2.684
9 6.956 7.102 50 2.386
10 3.981 4.115 51 2.263
11 3.867 2.594 52 2.845
12 3.738 3.438 53 2.342
13 3.021 3.292 54 2.146
14 3.027 3.984 55 4.955
15 2.999 5.809 56 4.813
16 3.392 2.849 57 4.642
17 3.431 2.083 58 4.674
18 3.435 1.893 59 4.621
19 5.866 3.521 60 4.372
20 5.634 3.890 61 7.137
21 5.469 5.662 62 6.929
22 5.829 3.721 63 6.396
23 5.756 2.218 64 4.117
24 5.767 1.977 65 3.484
25 7.966 66 3.231
26 7.497 67 2.609
27 7.256 68 2.312
28 4.105 69 2.201
29 3.876 70 2.936
30 3.611 71 2.407
31 2.731 72 2.126
33 2.549 Mean 4.609 3.987
35 3.342 t-Statistic 1.498
37 6.242
38 5.850
39 5.790
40 6.173
41 6.030
163
constructed using two approaches, respectively. Table 5.50 shows that t-value and p-value are
-0.259 and 0.796, respectively. These results imply that the difference is not significant at
five percent level of significance. From table 5.51 it is evident that in terms of excess of the
Sharpe ratios over the benchmarks, the average of series is negative (-0.0002) for Markowitz
portfolios and positive (0.0096) for Sharpe portfolios implying inferior and superior
performance, respectively. We apply t-test for difference between the two series of excess of
Sharpe ratios over the benchmarks. The computed t-value is -0.497 and corresponding p-
value is 0.620, implying that the difference is not significant at five percent level of
significance.
constructed using two approaches, respectively. Table 5.52 shows that the Sharpe and
Markowitz portfolios have positive (0.043%) and negative (-0.005%) mean values of Treynor
ratio, respectively. The t-test for the difference between these two series of Treynor ratios
shows that the p-value is 0.816 implying that there is no significant difference between these
two Treynor ratio series at five percent level of significance. As can be seen from table 5.53,
two series of excess of Treynor ratios over the benchmarks show mean values of -0.017% and
0.031% for Markowitz and Sharpe approaches, respectively. These results indicate Sharpe
model’s portfolios have performed better than benchmarks. However, the p-value of 0.646 of
the t-test implies that the difference is not significant at five percent level of significance.
164
Table 5.50 Sharpe ratios of portfolios in the third sub-period
RVARp RVARp
1 0.064 0.054 42 0.036
2 0.053 -0.016 43 -0.236
3 0.056 -0.169 44 -0.229
4 0.043 0.227 45 -0.241
5 0.027 -0.047 46 0.291
6 0.015 -0.063 47 0.326
7 -0.163 -0.042 48 0.371
8 -0.163 0.096 49 -0.013
9 -0.164 -0.297 50 0.016
10 0.234 0.267 51 0.046
11 0.240 0.051 52 0.068
12 0.249 -0.025 53 0.104
13 -0.047 -0.003 54 0.125
14 -0.041 0.000 55 0.063
15 -0.028 -0.259 56 0.046
16 -0.076 0.407 57 0.036
17 -0.088 0.091 58 -0.026
18 -0.092 0.126 59 -0.027
19 -0.032 -0.057 60 -0.013
20 -0.029 0.033 61 -0.233
21 -0.047 -0.242 62 -0.238
22 0.005 0.238 63 -0.235
23 0.040 0.153 64 0.214
24 0.058 0.014 65 0.212
25 -0.293 66 0.219
26 -0.293 67 0.043
27 -0.290 68 0.089
28 0.263 69 0.112
29 0.275 70 -0.032
30 0.337 71 -0.002
31 0.082 72 0.017
33 0.030 Mean 0.013 0.022
35 -0.035 t-Statistic -0.259
36 -0.041 p-value of t-test 0.796
37 -0.139
38 -0.106
39 -0.077
40 0.088
41 0.054
165
1 0.018 0.008 42 -0.052
2 0.008 -0.104 43 -0.048
3 0.010 0.018 44 -0.041
4 -0.045 -0.006 45 -0.054
5 -0.061 -0.042 46 0.058
6 -0.073 0.033 47 0.094
7 0.024 -0.087 48 0.138
8 0.024 0.009 49 -0.007
9 0.023 -0.110 50 0.022
10 0.001 0.034 51 0.052
11 0.007 0.057 52 0.164
12 0.016 0.072 53 0.201
13 -0.041 -0.049 54 0.221
14 -0.036 -0.088 55 0.018
15 -0.023 -0.071 56 0.001
16 0.021 0.174 57 -0.009
17 0.009 0.097 58 -0.113
18 0.004 0.222 59 -0.115
19 -0.078 -0.103 60 -0.101
20 -0.074 -0.055 61 -0.046
21 -0.092 -0.055 62 -0.050
22 -0.082 0.005 63 -0.047
23 -0.047 0.159 64 -0.019
24 -0.030 0.111 65 -0.021
25 -0.105 66 -0.014
26 -0.105 67 0.049
27 -0.102 68 0.094
28 0.030 69 0.118
29 0.042 70 0.065
30 0.104 71 0.094
31 0.087 72 0.113
33 0.036 Mean -0.0002 0.0096
35 0.062 t-Statistic -0.497
37 -0.185
41 -0.033
166
Table 5.52 Treynor ratios of portfolios in the third sub-period
RVOLp (%) RVOLp (%)
1 0.297 0.249 42 0.168
2 0.248 -0.076 43 -1.492
3 0.255 -1.042 44 -1.413
4 0.207 1.026 45 -1.509
5 0.131 -0.176 46 1.418
6 0.072 -0.231 47 1.694
7 -1.002 -0.161 48 1.984
8 -1.026 0.439 49 -0.042
9 -1.039 -1.914 50 0.053
10 1.141 1.248 51 0.153
11 1.201 0.179 52 0.355
12 1.251 -0.100 53 0.569
13 -0.177 -0.014 54 0.724
14 -0.163 0.000 55 0.331
15 -0.111 -1.670 56 0.223
16 -0.288 2.151 57 0.169
17 -0.344 0.317 58 -0.138
18 -0.367 0.803 59 -0.141
19 -0.187 -0.214 60 -0.065
20 -0.159 0.148 61 -1.411
21 -0.239 -1.517 62 -1.440
22 0.027 1.074 63 -1.411
23 0.198 0.465 64 0.944
24 0.279 0.059 65 0.950
25 -2.030 66 1.018
26 -1.969 67 0.133
27 -1.904 68 0.254
28 1.231 69 0.320
29 1.252 70 -0.114
30 1.479 71 -0.008
31 0.291 72 0.061
33 0.100 Mean -0.005 0.043
35 -0.147 t-Statistic -0.233
36 -0.172 p-value of t-test 0.816
37 -0.831
38 -0.554
39 -0.384
40 0.435
41 0.257
167
1 0.148 0.100 42 -0.183
2 0.100 -0.427 43 -0.471
3 0.106 -0.021 44 -0.392
4 -0.143 0.134 45 -0.488
5 -0.220 -0.162 46 0.526
6 -0.278 0.050 47 0.802
7 0.018 -0.310 48 1.092
8 -0.005 0.089 49 -0.028
9 -0.018 -0.893 50 0.067
10 0.249 0.356 51 0.167
11 0.309 0.193 52 0.636
12 0.359 0.181 53 0.850
13 -0.163 -0.162 54 1.005
14 -0.149 -0.351 55 0.183
15 -0.097 -0.649 56 0.074
16 -0.007 1.259 57 0.020
17 -0.063 0.331 58 -0.488
18 -0.086 1.084 59 -0.491
19 -0.336 -0.363 60 -0.415
20 -0.307 -0.203 61 -0.390
21 -0.387 -0.496 62 -0.419
22 -0.323 0.182 63 -0.390
23 -0.152 0.479 64 0.052
24 -0.072 0.340 65 0.058
25 -1.010 66 0.126
26 -0.948 67 0.147
27 -0.883 68 0.268
28 0.339 69 0.334
29 0.360 70 0.167
30 0.587 71 0.273
31 0.306 72 0.342
33 0.114 Mean -0.017 0.031
35 0.134 t-Statistic -0.462
37 -0.979
41 -0.094
168
respectively. It can be seen from Table 5.54 that Alphas have negative average values in both
cases but lesser negative average value (-0.047%) is found in the case of Sharpe approach
than that of Markowitz approach (-0.083%). Lesser negative value of Alpha indicates
superior performance of the portfolios constructed using Sharpe approach in comparison to
those constructed using Markowitz approach. Nevertheless from the p-value of 0.680, it can
be inferred that the difference between two series of Alphas is not significant at five percent
level of significance. Table 5.55 shows the negative average values of Fama measures for
two series indicating that both the series of portfolios have not earned any superior returns
because of selectivity on the part of the portfolio manager. These negative values reveal that
the portfolios have not offered the advantages of proficiency of selectivity to the investors.
Although the results show that the average value of Fama measures for portfolios constructed
using Sharpe approach is negative (-0.046%) but higher than average value of Fama measures
of those constructed using Markowitz approach (-0.094%); but the p-value of 0.562 of t-test
implies that the difference is not significant at five percent level of significance. Table 5.56
shows that Sharpe approach yields higher average M2 measure (0.148%) than that of the
Markowitz (0.124%). The p-value for the difference of means is 0.885. From this it can be
concluded that the difference between the averages of M2 measures in two approaches is not
significant at five percent level of significance.
In total, from the above results we infer that in all parameters of portfolio performance there
is no significant difference between the two approaches at five percent level of significance in
the third sub-period.
169
Table 5.54 Jensen measures (Alphas) of portfolios in the third sub-period
1 0.149 0.082 42 -0.235
2 0.101 -0.478 43 -0.597
3 0.104 -0.026 44 -0.488
4 -0.226 0.134 45 -0.540
5 -0.300 -0.130 46 0.371
6 -0.352 0.046 47 0.466
7 0.027 -0.352 48 0.539
8 -0.006 0.103 49 -0.023
9 -0.020 -0.984 50 0.048
10 0.203 0.314 51 0.114
11 0.239 0.144 52 0.346
12 0.267 0.153 53 0.364
13 -0.129 -0.132 54 0.371
14 -0.114 -0.306 55 0.173
15 -0.074 -0.584 56 0.073
16 -0.006 0.678 57 0.020
17 -0.055 0.199 58 -0.427
18 -0.075 0.321 59 -0.434
19 -0.341 -0.343 60 -0.372
20 -0.317 -0.177 61 -0.461
21 -0.416 -0.448 62 -0.479
22 -0.364 0.150 63 -0.415
23 -0.179 0.350 64 0.049
24 -0.086 0.160 65 0.045
25 -1.159 66 0.088
26 -1.056 67 0.125
27 -0.975 68 0.217
28 0.297 69 0.258
29 0.307 70 0.136
30 0.484 71 0.185
31 0.234 72 0.200
33 0.088 Mean -0.083 -0.047
35 0.106 t-Statistic -0.413
37 -1.025
38 -0.788
39 -0.617
40 0.106
41 -0.120
170
Table 5.55 Fama measures of portfolios in the third sub-period
1 0.086 0.032 42 -0.311
2 0.036 -0.559 43 -0.388
3 0.046 0.139 44 -0.319
4 -0.341 -0.027 45 -0.375
5 -0.401 -0.124 46 0.201
6 -0.448 0.113 47 0.282
7 0.212 -0.382 48 0.365
8 0.180 0.045 49 -0.019
9 0.161 -0.780 50 0.052
10 0.004 0.140 51 0.117
11 0.027 0.148 52 0.468
12 0.060 0.247 53 0.470
13 -0.124 -0.160 54 0.475
14 -0.108 -0.349 55 0.089
15 -0.068 -0.415 56 0.003
16 0.070 0.495 57 -0.043
17 0.030 0.202 58 -0.530
18 0.015 0.421 59 -0.529
19 -0.456 -0.362 60 -0.441
20 -0.418 -0.213 61 -0.331
21 -0.504 -0.312 62 -0.349
22 -0.480 0.017 63 -0.303
23 -0.273 0.352 64 -0.079
24 -0.173 0.219 65 -0.074
25 -0.839 66 -0.045
26 -0.790 67 0.128
27 -0.743 68 0.218
28 0.122 69 0.260
29 0.165 70 0.191
30 0.377 71 0.227
31 0.239 72 0.241
33 0.092 Mean -0.094 -0.046
35 0.206 t-Statistic -0.582
37 -1.152
38 -0.886
39 -0.707
40 0.004
41 -0.202
171
Table 5.56 M² measures of portfolios in the third sub-period
1 0.349 0.316 42 0.289
2 0.314 0.082 43 -1.152
3 0.323 -0.790 44 -1.113
4 0.317 1.002 45 -1.184
5 0.253 0.027 46 1.249
6 0.205 -0.027 47 1.383
7 -0.758 0.004 48 1.554
8 -0.758 0.530 49 0.113
9 -0.761 -1.487 50 0.185
10 1.029 1.155 51 0.260
11 1.051 0.273 52 0.355
12 1.087 0.086 53 0.460
13 0.029 0.129 54 0.520
14 0.042 0.145 55 0.348
15 0.075 -1.277 56 0.291
16 -0.063 1.690 57 0.258
17 -0.098 0.373 58 0.042
18 -0.111 0.523 59 0.038
19 0.034 -0.048 60 0.092
20 0.045 0.277 61 -1.140
21 -0.014 -1.188 62 -1.162
22 0.166 1.042 63 -1.146
23 0.306 0.527 64 0.951
24 0.376 0.198 65 0.943
25 -1.462 66 0.972
26 -1.463 67 0.253
27 -1.446 68 0.367
28 1.138 69 0.426
29 1.187 70 0.065
30 1.425 71 0.151
31 0.349 72 0.206
33 0.221 Mean 0.124 0.148
35 0.056 t-Statistic -0.145
37 -0.317
38 -0.208
39 -0.112
40 0.498
41 0.362
172
Overall, the results of comparison of Markowitz and Sharpe models indicate that only in the
first sub-period the results of comparison are economically in favour of Markowitz approach,
however, the difference between the results of two approaches is not statistically significant
at five percent level of significance.
In the second sub-period, the results of comparison of all performance measures are
economically in favour of Sharpe single index model. However, when returns are considered
as a measure, Markowitz portfolios have higher returns than those of Sharpe portfolios
although these are not statistically significant. Except risk measures (Betas and standard
deviations), there is no statistical difference between the other performance measures of
portfolio constructed using two approaches. There is statistical difference between average
risks of two approaches and the portfolios constructed using Markowitz approach report
higher average risk.
The results of third sub-period indicate that portfolios based on the Sharpe single index model
have economically superior performances compared to those using Markowitz approach.
Surprisingly, in spite of higher average return, portfolios constructed using Sharpe approach
report lower average standard deviation than those constructed using Markowitz approach.
However, there is no statistical difference between performances of portfolios constructed
using two approaches at five percent level of significance.
173

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Chapter 5

Construction of Optimal Portfolio

1995-2002 2001-2008 2005-2012

Table 5.3 Stocks selected for the second sub-period (2001-2008)

Where, σF is variance of the market index.

where, N is number of included securities in optimal portfolio and Z is calculated as follows:

where, RVOL is reward to volatility ratio of the portfolio.

The relationship between SR and RAP can be shown as follow:

5.5.2 Portfolios Constructed Using Markowitz Approach

Construction Period Sample size Return (%) Std Dev (%)

1995-1996 10 0.6879 4.1943

5.5.4 Comparison of Markowitz and Sharpe Approaches

portfolios constructed using

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Chapter 5

Construction of Optimal Portfolio

1995-2002 2001-2008 2005-2012

Table 5.3 Stocks selected for the second sub-period (2001-2008)

Where, σF is variance of the market index.

where, N is number of included securities in optimal portfolio and Z is calculated as follows:

where, RVOL is reward to volatility ratio of the portfolio.

The relationship between SR and RAP can be shown as follow:

5.5.2 Portfolios Constructed Using Markowitz Approach

Construction Period Sample size Return (%) Std Dev (%)

1995-1996 10 0.6879 4.1943

5.5.4 Comparison of Markowitz and Sharpe Approaches

portfolios constructed using

You might also like

Where, σF is variance of the market index.

where, N is number of included securities in optimal portfolio and Z is calculated as follows: