The Performance of an Efficient Portfolio Index During Extreme Market Conditions In South Africa
Date
2012-01-17
Authors
Surtee, Yaseen
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Abstract
Modern portfolio theory dates back to the work of Markowitz (1952), when he first
introduced the concept of efficient portfolio selection, suggesting that there is only
one combination of shares that would maximise an investors returns for a given
level of risk. Since this introduction, portfolio selection has evolved producing
concepts and tools such as the Capital Asset Pricing Model or CAPM (Tobin 1958;
Sharpe 1963), the Arbitrage Pricing Theory (Ross 1976) and the 3 Factor Model
(Fama and French 1996a, 1996b).
This research seeks to develop an Index based on the efficient portfolio concepts
of Markowitz (1952) for the JSE and evaluates the performance of this index
relative to the J203 or All share index which was used as the benchmark index.
Over the period January 2002 till December 2009, when accumulating the
abnormal returns or excess returns of the efficient portfolio index over the market
index, for the full duration of the analysis period, the efficient portfolio index
returned a 3.8% year on year premium return over the market benchmark. The
research however, did not yield a statistically significant difference between the
returns of the efficient portfolio index and the returns of the market index.
The research goes on to search for any conditional influences on the performance
of the efficient portfolio, specifically during bull and bear market conditions. Using
a t-test there was no difference found in the performance of the index between the
two conditional states of the market
Description
MBA thesis - WBS
Keywords
Portfolio theory, Stocks and shares, Marketing of stocks and shares