The Effect of Portfolio Diversification for the Bursa Malaysia (original) (raw)
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Portfolio Diversification in Malaysian Stock Market
2011
CHAPTER 1 1.2.2 Types of Diversification 2 1.2.3 Strategies of Diversification 3 1.2.4 Factors that affecting portfolio diversification 4 1.3 Research Problems 6 1.4 Research Objectives 7 1.5 Significant of Study 8 CHAPTER 2 LITERATURE REVIEW 2.1 Review of Literature 9 2.2 Retrospective Part (before year 2000) 9 2.3 Modern Part (after year 2000) 2.4 Malaysia 2.5 Gaps on the Literature
Portfolio insurance of a portfolio reflected by FTSE Bursa Malaysia KLCI
2012 IEEE Colloquium on Humanities, Science and Engineering (CHUSER), 2012
This paper examines the effect of portfolio diversification for stocks listed on the Malaysian stock exchange. We determine the extent to which the unsystematic risk component can be reduced through diversification posited by Modern Portfolio Theory. Prices of randomly selected stocks were obtained from Yahoo! Finance for the five year period starting from January 2010 to March 2014. In order to analyze the robustness of the empirical results, three sets of portfolios were tested in this study and each set contained 55 stocks. The total sample of 165 stocks was chosen from different sectors that are listed under Bursa Malaysia. In addition, the three samples were tested for two type of differencing intervals, daily and weekly, to obtain more robust results. The empirical findings of the study show that increasing the number of stocks in the sample portfolio leads to decreasing standard deviation (unsystematic risk) the investment portfolio for Malaysia Stock Market stocks until each portfolio is well-diversified. The uniqueness in this study is that the empirical results show that, the level of data frequency significantly influences changes in stock portfolio size required to obtain optimal portfolio diversification. Using the daily differencing interval, 45 stocks are need to eliminate unsystematic risk and using the weekly differencing interval, only 35 stocks are required to obtain a well-diversified portfolio.
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Faced with so many risk modeling alternatives in portfolio optimization, several questions arise regarding their legitimacy, utility and applicability. In particular, a question arises involving the adherence of the alternative models with regard to the basic presupposition of Markowitz's classical model, with regard to the concept of diversification as a means of controlling the relationship between risk and return within a process of optimization. In this context, the aim of this article is to explore the riskdifferentiated configurations that entropy can provide, from the point of view of the repercussions that these have on the degree of diversification and on portfolios performance. The reach of this objective requires that a comparative analysis is made between models that include entropy in their formulation and the classic Markowitz model. In order to contribute to this debate, this article proposes that adaptations are made to the models of relative minimum entropy and of maximum entropy, so that these can be applied to investment portfolio optimizations. The comparative analysis was based on performance indicators and on a ratio of the degree of portfolio diversification. The portfolios were formed by considering a sample of fourteen assets that compose the IBOVESPA, which were projected during the period from January 2007 to December 2009, and took into account the matrices of covariance that were formed as from January 1999. When comparing the Markowitz model with two models that were constructed to represent new risk configurations based on entropy optimization, the present study concluded that the first model was far superior to the others. Not only did the Markowitz model present better accumulated nominal yields, it also presented a far greater predictive efficiency and better effective performance, when considering the trade-off between risk and return. However, with regards to diversification, the Markowitz model concentrated its weights in only five of the fourteen sample assets. Contrary to these two models, the maximum entropy model showed a level of diversification that was very close to the maximum level, which would be a situation that is far more in keeping with Markowitz's diversification precepts. However, these models showed the worst results in the comparative analysis of performance.
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