[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/a/rfa/afajnl/v7y2021i1p1-9.html
   My bibliography  Save this article

The Effect of Systematic Risk and Previous Period Returns on Portfolio Selection

Author

Listed:
  • Cem Berk
  • Bekir Tutarli
Abstract
There are many techniques to determine investable set of portfolios given return data of assets. However, the theoretical results do not always point out the best portfolios in practice. This is due to the fact that financial dynamics are so difficult to be modelled and this requires many assumptions. The investor may have some preferences to select portfolios. In this study, two selection criteria are proposed to be applied in a mean variance optimization. These criteria are beta coefficient which is a measure of systematic risk and previous period return.The study has an empirical analysis applied on Istanbul Stock Exchange. The findings of the study confirm that these selection criteria may be used to obtain investable portfolios. The analysis with beta selection criteria reveal that the portfolio with lowest 5 beta coefficients is the best alternative. This means that the advantage of low beta which is a natural hedge when stock values declineis superior to diversification benefits of adding new stocks.The previous period return analysis suggest two alternative portfolios. In addition, one of these portfolios generate higher return than the portfolio selected with beta selection criterion. This is also a higher risk portfolio. Therefore the decision is based on risk profile of the investor.This research offer to add selection criteria to the standard approach which is beneficial for academic and practical purposes in portfolio management.

Suggested Citation

  • Cem Berk & Bekir Tutarli, 2021. "The Effect of Systematic Risk and Previous Period Returns on Portfolio Selection," Applied Finance and Accounting, Redfame publishing, vol. 7(1), pages 1-9, February.
    • Handle: RePEc:rfa:afajnl:v:7:y:2021:i:1:p:1-9
    as

    Download full text from publisher

    File URL: http://redfame.com/journal/index.php/afa/article/download/5051/5241
    Download Restriction: no
    File URL: http://redfame.com/journal/index.php/afa/article/view/5051
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Thomas J. Linsmeier & Neil D. Pearson, 1996. "Risk Measurement: An Introduction to Value at Risk," Finance 9609004, University Library of Munich, Germany.
    2. Linsmeier, Thomas J. & Pearson, Neil D., 1996. "Risk measurement: an introduction to value at risk," ACE Reports 14796, University of Illinois at Urbana-Champaign, Department of Agricultural and Consumer Economics.
    3. Jim Fischer, 2019. "Modern Portfolio Theory and the Efficient Markets Hypothesis: How well did they serve Canada?s baby-boom generation?," Proceedings of Economics and Finance Conferences 9511941, International Institute of Social and Economic Sciences.
    4. Mimi Lord, 2020. "University Endowment Committees, Modern Portfolio Theory and Performance," JRFM, MDPI, vol. 13(9), pages 1-22, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Laurent El Ghaoui & Maksim Oks & Francois Oustry, 2003. "Worst-Case Value-At-Risk and Robust Portfolio Optimization: A Conic Programming Approach," Operations Research, INFORMS, vol. 51(4), pages 543-556, August.
    2. Javier Calatrava & Alberto Garrido, 2005. "Spot water markets and risk in water supply," Agricultural Economics, International Association of Agricultural Economists, vol. 33(2), pages 131-143, September.
    3. Basak, Suleyman & Shapiro, Alexander, 2001. "Value-at-Risk-Based Risk Management: Optimal Policies and Asset Prices," The Review of Financial Studies, Society for Financial Studies, vol. 14(2), pages 371-405.
    4. Xiongwei Ju & Neil D. Pearson, 1998. "Using Value-at-Risk to Control Risk Taking: How Wrong Can you Be?," Finance 9810002, University Library of Munich, Germany.
    5. Victor Olkhov, 2021. "To VaR, or Not to VaR, That is the Question," Papers 2101.08559, arXiv.org, revised Apr 2024.
    6. Tarek Ibrahim Eldomiaty & Mohamed Hashem Rashwan & Mohamed Bahaa El Din & Waleed Tayel, 2016. "Firm, industry and economic determinants of working capital at risk," International Journal of Financial Engineering (IJFE), World Scientific Publishing Co. Pte. Ltd., vol. 3(04), pages 1-29, December.
    7. Qi Tang & Danni Yan, 2010. "Autoregressive trending risk function and exhaustion in random asset price movement," Journal of Time Series Analysis, Wiley Blackwell, vol. 31(6), pages 465-470, November.
    8. Wallace, Garry E. & Samsul Huda, A.K., 2005. "Using climate information to approximate the value at risk of a forward contracted canola crop," AFBM Journal, Australasian Farm Business Management Network, vol. 2(1), pages 1-9.
    9. Mei-Ling Tang & Trung K. Do, 2019. "In search of robust methods for multi-currency portfolio construction by value at risk," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 26(1), pages 107-126, March.
    10. Yingying Kang & Rajan Batta & Changhyun Kwon, 2014. "Value-at-Risk model for hazardous material transportation," Annals of Operations Research, Springer, vol. 222(1), pages 361-387, November.
    11. Guilherme Vitolo & Flavio Cipparrone, 2014. "Strategic Implications Of Project Portfolio Selection," Accounting & Taxation, The Institute for Business and Finance Research, vol. 6(2), pages 11-20.
    12. Sehgal, Ruchika & Sharma, Amita & Mansini, Renata, 2023. "Worst-case analysis of Omega-VaR ratio optimization model," Omega, Elsevier, vol. 114(C).
    13. Dockery, Everton & Efentakis, Miltiadis & Al-Faryan, Mamdouh Abdulaziz Saleh, 2018. "Are range based models good enough? Evidence from seven stock markets," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 8(2), pages 7-40.
    14. Rossignolo, Adrian F. & Fethi, Meryem Duygun & Shaban, Mohamed, 2012. "Value-at-Risk models and Basel capital charges," Journal of Financial Stability, Elsevier, vol. 8(4), pages 303-319.
    15. Amita Sharma & Sebastian Utz & Aparna Mehra, 2017. "Omega-CVaR portfolio optimization and its worst case analysis," OR Spectrum: Quantitative Approaches in Management, Springer;Gesellschaft für Operations Research e.V., vol. 39(2), pages 505-539, March.
    16. Rossignolo, Adrián F. & Fethi, Meryem Duygun & Shaban, Mohamed, 2013. "Market crises and Basel capital requirements: Could Basel III have been different? Evidence from Portugal, Ireland, Greece and Spain (PIGS)," Journal of Banking & Finance, Elsevier, vol. 37(5), pages 1323-1339.
    17. Marcello Spanò, 2013. "Theoretical explanations of corporate hedging," International Journal of Business and Social Research, MIR Center for Socio-Economic Research, vol. 3(7), pages 84-102, July.
    18. Katerina Rigana & Ernst C. Wit & Samantha Cook, 2024. "Navigating Market Turbulence: Insights from Causal Network Contagion Value at Risk," Papers 2402.06032, arXiv.org.
    19. Cohen, Morrel H. & Natoli, Vincent D., 2003. "Risk and utility in portfolio optimization," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 324(1), pages 81-88.
    20. Marcello Spanò, 2013. "Theoretical explanations of corporate hedging," International Journal of Business and Social Research, LAR Center Press, vol. 3(7), pages 84-102, July.

    More about this item

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:rfa:afajnl:v:7:y:2021:i:1:p:1-9. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Redfame publishing (email available below). General contact details of provider: https://edirc.repec.org/data/cepflch.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.