PORTFOLIO SELECTION AND OPTIMIZATION IN ROMANIAN AND POLISH STOCK MARKETS

Radu-Alexandru Șerban, Diana Mihaiu and Vasile Brătian
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Radu-Alexandru Șerban: Lucian Blaga University of Sibiu, Romania
Diana Mihaiu: Lucian Blaga University of Sibiu, Romania
Vasile Brătian: Lucian Blaga University of Sibiu, Romania

Studies in Business and Economics, 2025, vol. 20, issue 2, 376-389

Abstract: This research aims to explore the selection and optimization of stocks from two Eastern European markets, Romania and Poland, starting from the maximum return criterion, downside risk, and Sortino ratio when building a portfolio. The Post-Modern Portfolio Theory (PMPT) serves as the main methodological framework to achieve our primary objective, ‘Building portfolios of stocks on the two markets in Eastern Europe, Romania and Poland, starting from the maximum return criterion’. The research focused on stocks from the flagship indexes of the Bucharest Stock Exchange (BSE) and the Warsaw Stock Exchange (WSE), namely the BET Index and the WIG20 Index. The data was collected for 40 companies, 20 companies in each stock market, for the period June 2020 until June 2025, 5 ‘stock years’, with daily close prices, government 10-year bonds as risk-free rates, and equity risk premiums for Romanian and Polish markets. Two portfolios were built, one from the BSE and another from the WSE. The results indicate, through PMPT and Sortino ratio as a performance indicator, that indeed the potential loss of a stock (downside risk) and the expected return play a crucial role in building portfolios, especially in volatile markets.

Keywords: Downside risk; Maximum return criterion; Post-Modern Portfolio Theory; Security Market Line; Sortino ratio (search for similar items in EconPapers)
Date: 2025
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