Application of the Modern Portfolio Theory in Diversification of the Debt Securities Portfolio in Emerging Markets

Grujić, Miloš

doi:10.7251/zrefis1613067g

Cited by 9 publications

(7 citation statements)

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“…Markowitz (1952) further explained that taking on a greater level of risk leads to greater benefits. Grujić (2016) stated that a portfolio is an amalgamation of various asset types, namely, financial instruments, deposits and securities, while Georgiev et al (2003) identify real estate is a key component of several corporate portfolios. Increasing possibilities of international investment have led to the rise of investment in global real estate as part of a varied portfolio of assets (Newell and Worzala, 1995).…”

Section: Literature Reviewmentioning

confidence: 99%

The effects of political, economic and financial components of country risk on housing prices in South Africa

Muzindutsi

Jamile

Zibani

et al. 2020

IJHMA

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Purpose The housing market in South Africa has the potential to drive economic growth and attract foreign investment, but it can be affected by various risk factors. This paper aims to conduct an empirical analysis of the effect of country risk components on the housing market in South Africa. Design/methodology/approach Linear and nonlinear autoregressive distributed lag (ARDL) models were used to evaluate the effects of the economic, financial and political risk factors of country risk on the prices of different segments of houses based on 276 monthly time-series data from January1995 to December 2015. Findings First, the results established that the three housing indices were more sensitive to political risk in the long run. Second, short run results showed that the three housing indices were largely influenced by their own preceding adjustments in the short run albeit minimal influences from political risk. Third, large housing segments indicated a higher magnitude of the country risk effect in South Africa. Originality/value This paper concluded that the response of housing prices to changes in the country risk components differed across the three segments of the housing market in South Africa. Consequently, this study presented the first comparison of the reactions of different housing segments to different components country risk.

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Section: Literature Reviewmentioning

confidence: 99%

The effects of political, economic and financial components of country risk on housing prices in South Africa

Muzindutsi

Jamile

Zibani

et al. 2020

IJHMA

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“…Hence, they enrich the structure of the financial sector, i.e., deepen the capital market. At the same time, institutional investors largely contribute to the increase in savings by collecting smaller amounts of capital from individual owners, as well as to the rationalization of the use of capital by placing it in securities [9]. Three types of financial institutions are specifically prominent: pension funds, insurance companies and investment funds.…”

Section: Literature Reviewmentioning

confidence: 99%

“…A consequence of the assumption about knowing the same information would be that all investors create the same portfolio, i.e., that possible portfolio combinations are reduced as much as possible. The reason for this is that, according to the theory, all investors have access to the same information which contain the return rates of all securities in the past [13], [9].…”

Section: Literature Reviewmentioning

confidence: 99%

Testing of portfolio optimization through investments in stock market indices and Bitcoin

Grujić¹,

Mekinjić²,

Vujičić-Stefanović³

2021

Ekonomika preduzeća

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This paper presents an empirical verification of the effectiveness and usefulness of investment diversification using the main stock exchange indices and Bitcoin. The objective is to determine the effects applying the Markowitz portfolio optimization theory, i.e., the advantages of applying the modern portfolio theory for institutional investors. The research offers an answer to the following question: what are the advantages and disadvantages of using Bitcoin in portfolio optimization? The paper contributes to the representation of the reach and limitations of the modern portfolio theory for institutional investors. The conclusion is that rational behaviour of institutional investors requires consideration of portfolio optimization using the Markowitz model, because it is possible to create portfolios which, on the basis of historical returns, provide desired returns alongside certain risks. The methodology includes the analysis of high frequency data, i.e., daily trading data were used. The results indicate that the use of the Markowitz portfolio selection method, with all its limitations, is desirable, possible and applicable, but that it entails serious flaws in the sense of neglecting transaction costs, foreign exchange differences and the real value in the stock market. The results of the research show that Bitcoin is a good source of diversification in a portfolio that contains traditional financial instruments both for the risk-averse investor as well as for those investors who have a greater appetite for risk. The conclusion is that rational behavior of institutional investors requires consideration of investing in Bitcoin using the Markowitz model. However, given the high degree of volatility, investors should be very careful when making decisions about including Bitcoin in the portfolio.

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“…The diversification of the investment portfolio is not only related to the stock market. Another study (Grujić, 2016) presents the advantages of using the Markowitz theory for the domestic bond market. The research was conducted for selected bonds listed on the Banja Luka Stock Exchange.…”

Section: Literature Reviewmentioning

confidence: 99%

Markowitz’s portfolio theory – optimal length of estimation window for gold and the biggests companies on the Warsaw Stock Exchange

Potrykus¹

2019

Prace Naukowe Uniwersytetu Ekonomicznego we Wrocławiu

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The following article is dedicated to the construction of an investment portfolio consisting of 3 investments from the Polish capital market found in the WIG20 index and from investment in gold. The purpose of the study was to determine the optimal length of the estimation window for building a portfolio with minimal risk and maximum efficiency. The length of the estimation window was also assessed in terms of the rate of return and the maximum cumulative loss. Data from 2017 was used to build the portfolio, and the weightings determined for the portfolio based on these data were evaluated using data from 2018 (from January to October). Based on the research, it was found that the optimal length of the estimation window ranges from 144 to 160 daily observations from the past. However, depending on the investment objective (risk minimization or maximization of efficiency) and the characteristics describing the portfolio, other lengths of the estimation window may also be appropriate.

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Application of the Modern Portfolio Theory in Diversification of the Debt Securities Portfolio in Emerging Markets

Cited by 9 publications

References 0 publications

The effects of political, economic and financial components of country risk on housing prices in South Africa

The effects of political, economic and financial components of country risk on housing prices in South Africa

Testing of portfolio optimization through investments in stock market indices and Bitcoin

Markowitz’s portfolio theory – optimal length of estimation window for gold and the biggests companies on the Warsaw Stock Exchange

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