TITLE

BENEFITS OF ASSETS DIVERSIFICATION: APPLICATION OF MEAN VARIANCE EFFICIENT FRONTIER TO ROMANIAN STOCK MARKET

AUTHOR(S)
Panait, Iulian; Slavescu, Ecaterina Oana; Constantinescu, Alexandru
PUB. DATE
January 2013
SOURCE
Actual Problems of Economics / Aktual'ni Problemi Ekonomìki;Jan2013, Vol. 139 Issue 1, p450
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
Our paper investigates the efficiency of portfolio diversification at Romanian stock market. In order to do this, we use data mining techniques to study the effect that the number of assets has on the total portfolio variance. We use the liquidity of transactions during Jan. 1st 2011 and May 11th 2012 to rank 42 of the most active stocks traded at Bucharest Stock Exchange, and after that we simulate portfolios and compute the Markowitz efficient frontier for combinations of assets that start with only the most liquid company and continue until all the 42 stocks are included. Our results show that portfolio risk decreases as the number of assets increases, both for the minimum variance portfolio (MVP) and for other discretionary types of portfolios. We also find that the marginal benefits of diversification are high at the earlier stages and decreases as the number of assets increase. We continue by simulating different combinations between the 42 stocks universe of risky portfolios and the risk free asset, and we confirm that best choice of capital market line (CML) portfolios, for all levels of risk aversion, are found when the number of assets in the portfolio is higher.
ACCESSION #
85126476

 

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