Project on equity portfolio construction at ShareKhan
CHAPTER – 1
INTRODUCTION TO THE STUDY
Abstract
The study was carried at Share Khan, Coimbatore during March 2014. The aim of the study is to construct an optimum equity portfolio with stocks that form a part of the S&P BSE SENSEX (S&P Bombay Stock Exchange Sensitive Index), using Sharpe’s Single Index model. Daily close price of all the 30 securities of BSE Sensex for the period of 1 year from January 2013 to December 2013 is taken for analysis. In this model the securities ' inclusion in the portfolio is directly related to its excess return-to-beta ratio. Then they are ranked from highest to lowest order. The number of securities selected depends on a unique Cut- off rate such that all securities with higher ratios will be included. Percentage of investment in each of the selected security is then decided on the basis of respective weights assigned to each security.
Investments
Investment refers to an asset or item that is purchased with the hope that it will generate income or appreciate in the future. In an economic sense, an investment is the purchase of goods that are not consumed today but are used in the future to create wealth. In finance, an investment is a monetary asset purchased with the idea that the asset will provide income in the future or appreciate and be sold at a higher price.
Equity market investments typically yield high returns, particularly if invested over longer periods of time, although such investments are characterized by a high degree of price volatility in the short term.
The below table illustrate why a person should invest in shares over any other asset class
Asset Class
Comparison to Equities
Equities (Shares)
Ability to diversify
Higher returns in the long-term
Liquidity
Flexibility to spread the risk
Ability to invest small amounts more often
Benefit from company profits and gaining returns
Receive dividends
Property
Large initial investment
Returns are smaller in the long-term
Amount of property you
INTRODUCTION TO THE STUDY
Abstract
The study was carried at Share Khan, Coimbatore during March 2014. The aim of the study is to construct an optimum equity portfolio with stocks that form a part of the S&P BSE SENSEX (S&P Bombay Stock Exchange Sensitive Index), using Sharpe’s Single Index model. Daily close price of all the 30 securities of BSE Sensex for the period of 1 year from January 2013 to December 2013 is taken for analysis. In this model the securities ' inclusion in the portfolio is directly related to its excess return-to-beta ratio. Then they are ranked from highest to lowest order. The number of securities selected depends on a unique Cut- off rate such that all securities with higher ratios will be included. Percentage of investment in each of the selected security is then decided on the basis of respective weights assigned to each security.
Investments
Investment refers to an asset or item that is purchased with the hope that it will generate income or appreciate in the future. In an economic sense, an investment is the purchase of goods that are not consumed today but are used in the future to create wealth. In finance, an investment is a monetary asset purchased with the idea that the asset will provide income in the future or appreciate and be sold at a higher price.
Equity market investments typically yield high returns, particularly if invested over longer periods of time, although such investments are characterized by a high degree of price volatility in the short term.
The below table illustrate why a person should invest in shares over any other asset class
Asset Class
Comparison to Equities
Equities (Shares)
Ability to diversify
Higher returns in the long-term
Liquidity
Flexibility to spread the risk
Ability to invest small amounts more often
Benefit from company profits and gaining returns
Receive dividends
Property
Large initial investment
Returns are smaller in the long-term
Amount of property you
Bibliography: Journal Publications Jecheche Petro’s, “An empirical investigation of Markowitz Modern Portfolio Theory - A case of the Zimbabwe Stock Exchange”, Journal of Case Research in Business and Economics (2008) Chance et.al, “Experimental Evidence on Portfolio Size and Diversification: Human Biases in Naıve Security Selection and Portfolio Construction” The Financial Review 46 (2011) 427–457. Niranjan Mandal “Sharpe’s single index model and its application to construct optimal portfolio: an empirical study” The Great Lakes Herald, Vol.7, No.1, (2013) S Nithya. J “Optimal Portfolio Construction with Markowitz Model among Large Cap’s In India” Research Journali’s Journal of Finance, Vol. 2 No. 2 February (2014) ISSN 2348-0963 Books Punithavathy Pandian (2012). Security Analysis and Portfolio Management, Vikas Publishing House Pvt. Ltd. Dhanesh Kumar Khatri (2014). Investment Management & Security Analysis, 2/e Trinity Press Websites