An Application of Portfolio Mean-Variance and Semi-Variance Optimization Techniques: A Case of Fiji

Ronald Kumar, Peter Stauvermann and Aristeidis Samitas
Additional contact information
Aristeidis Samitas: Department of Finance, College of Business, Zayed University, Abu Dhabi MF2-2-006, United Arab Emirates

JRFM, 2022, vol. 15, issue 5, 1-25

Abstract: In this paper, we apply the Markowitz portfolio optimization technique based on mean-variance and semi-variance as measures of risk on stocks listed on the South Pacific Stock Exchange, Fiji. We document key market characteristics and consider monthly returns data from SEP-2019 to FEB-2022 (T = 30) of 17/19 listed companies on the stock exchange to construct various portfolios like 1/N (naïve), maximum return, and market and minimum-variance with and without short-selling constraints. Additionally, we compute each stock’s beta using the market capitalization-weighted stock price index data. We note that well-diversified portfolios (market portfolio and minimum-variance portfolio) with short-selling constraints have relatively higher expected returns with lower risk. Moreover, well-diversified portfolios perform better than the naïve and maximum portfolios in terms of risk. Moreover, we find that both the mean-variance and the semi-variance measures of risk yields a unique market portfolio in terms of expected returns, although the latter has a lower standard deviation and a higher Sharpe ratio. However, for the minimum-variance portfolios and market portfolios without short selling, we find relatively higher returns and risks using the mean-variance than the semi-variance approach. The low beta of individual stock indicates the low sensitivity of its price to the movement of the market index. The study is an initial attempt to provide potential investors with some practical strategies and tools in developing a diversified portfolio. Since not all the portfolios based on mean-variance and the semi-variance analyses are unique, additional methods of investment analysis and portfolio construction are recommended. Subsequently, for investment decisions, our analysis can be complemented with additional measures of risk and an in-depth financial statement/company performance analysis.

Keywords: stock market analysis; portfolio construction; mean-variance; semi-variance; optimization; South Pacific Stock Exchange; Fiji (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.mdpi.com/1911-8074/15/5/190/pdf (application/pdf)
https://www.mdpi.com/1911-8074/15/5/190/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jjrfmx:v:15:y:2022:i:5:p:190-:d:797211

Access Statistics for this article

JRFM is currently edited by Ms. Chelthy Cheng

More articles in JRFM from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().