Application of single Sharpe index on the optimal portfolio construction using Indian blue-chip stocks

Debajit Rabha and Rajkumar Giridhari Singh
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Debajit Rabha: Mizoram University, Tanhril, India
Rajkumar Giridhari Singh: Mizoram University, Tanhril, India

Theoretical and Applied Economics, 2021, vol. XXVIII, issue 4(629), Winter, 135-150

Abstract: Portfolio plays an important role for an investor as it reduces the risk and maximize the return on investment. But portfolio construction is a complicated process. To ease the process of portfolio construction many academicians developed optimal portfolio construction model, the Sharpe Single Index model is one of them. The present study has used the Sharpe Single Index model to construct an optimal portfolio in the Indian Capital Market using blue chip companies listed with NSE from 1st January 2011 to 21st January 2021. For the present study total 27 blue chip stocks were found and their weekly and monthly closing price data collected. After analysis of the data the study found that for the weekly data out of 27 securities only 1 security is found to be eligible for the optimal portfolio whereas 18 securities are found for the monthly data. The reason for finding this contrary result may be due to data variation. So, from this finding we can say that for the particular model it is better to use monthly data rather than using daily or weekly data which are too volatile to predict the returns of the securities and construct a portfolio. The result of the study would be useful to long-term investors who can either copy this portfolio or pick and choose from among these stocks.

Keywords: NSE; Sharpe model; optimal portfolio; risk and risk-premium; blue-chip; securities. (search for similar items in EconPapers)
Date: 2021
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