| Abstract [eng] |
There are many ways to select a set of most appropriate stocks for an investment portfolio as well as to allocate weights of assets based on various criteria, but all of these methods have some disadvantages. Four main techniques were analysed of asset selection in order to decide which one has least disadvantages. These techniques were based on correlation coefficients between asset returns, maximisation of the utility function (different values of risk aversion coefficients were analysed), selection of assets with highest historical returns, and employment of modified P/E ratio. Research was carried with all the stocks quoted in NASDAQ OMX Baltic Exchange in Vilnius Official list for more than 10 years (2001 – 2010). There were 14 stocks quoted in this Official list for such period. After selecting stocks for portfolios different theoretical asset allocation models (equal weight asset allocation, Markowitz model, Capital Asset Pricing Model, model where risk free asset is added when constructing a portfolio) were modified and adapted in order to become suitable for real market situation. Then the models were applied in Lithuanian equity market. After backtesting some investment characteristics were compared. Results were judged against popular indices in order to obtain conclusions. It was concluded that the highest return rate was achieved by constructing the portfolio with employing Capital Asset Pricing Model. Best technique for selecting stocks proved to be maximisation of utility function when risk aversion coefficient A=3. Also, after comparing asset selection methods, it was noted that highest Sharpe ratio was achieved by utilising the same technique. It is recommended to add a risk free asset into portfolio of stocks because it usually improves results of most portfolios, irrespective of their contents. Constructing portfolios based on asset allocation according to indices analysed in the paper is not recommended because characteristics of indices were worse than the ones of constructed portfolios. |
