Comparison of Portfolios Using Markowitz and Downside Risk Theories on the Czech Stock Market
The result's identifiers
Result code in IS VaVaI
<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F00216305%3A26510%2F19%3APU132610" target="_blank" >RIV/00216305:26510/19:PU132610 - isvavai.cz</a>
Result on the web
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DOI - Digital Object Identifier
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Alternative languages
Result language
angličtina
Original language name
Comparison of Portfolios Using Markowitz and Downside Risk Theories on the Czech Stock Market
Original language description
Purpose: The paper deals with the comparison of Markowitz and downside risk portfolio theories and the practical application of both approaches on the Czech stock market. Two investment portfolios of stocks of companies included in the PX index of the Prague Stock Exchange have been constructed and their results are comparison. Design/methodology/approach: For the purposes of this paper, the secondary research method has been chosen based on structured data collection in order to clarify the scientific knowledge of the modern and post-modern portfolio theory issues. The research part of the paper deals with eight stocks, which were included in the PX index in the period from 1/2013 to 8/2018. Empirical data are obtained from the official website of the Prague Stock Exchange. Findings: The added value of the paper can be seen in the empirical testing and comparison of modern and post-modern portfolio theory in a small capital market with low market liquidity, such as the Czech stock market, since not many of them have been performed yet. Research/practical implications: The comparison of both approaches suggests that risk measurement using standard deviation is considered inappropriate in modern portfolio theory. Furthermore, it is evident that the more the instrument departs from the normal distribution, the greater the differences in the risk assessment will be. Shortcomings of the Markowitz approach are remedied by post-modern portfolio theory that measures risk through downside risk, which adequately responds to the asymmetry in returns. Originality/value: According to research, it is possible to state that modern theory allocates stocks to the portfolio stocks with a high return-to-risk ratio. Furthermore, lower ability of modern theory to diversify the portfolio has been demonstrated. The post-modern portfolio achieves lower risk rate and greater diversification and seems to be more suitable for creating a portfolio even in a small and less effective market.
Czech name
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Czech description
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Classification
Type
D - Article in proceedings
CEP classification
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OECD FORD branch
50202 - Applied Economics, Econometrics
Result continuities
Project
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Continuities
S - Specificky vyzkum na vysokych skolach
Others
Publication year
2019
Confidentiality
S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů
Data specific for result type
Article name in the collection
Proceedings of the 7th International Conference: Innovation Management,Entrepreneurship and Sustainability
ISBN
978-80-245-2316-3
ISSN
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e-ISSN
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Number of pages
13
Pages from-to
291-303
Publisher name
Oeconomica
Place of publication
Prague, Czech Republic
Event location
Praha
Event date
May 30, 2019
Type of event by nationality
WRD - Celosvětová akce
UT code for WoS article
000518586600024