Comparison of Portfolios Using Markowitz and Downside Risk Theories on the Czech Stock Market

Kód výsledku v IS VaVaI

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Výsledek na webu

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DOI - Digital Object Identifier

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Jazyk výsledku

angličtina

Název v původním jazyce

Comparison of Portfolios Using Markowitz and Downside Risk Theories on the Czech Stock Market

Popis výsledku v původním jazyce

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.

Název v anglickém jazyce

Comparison of Portfolios Using Markowitz and Downside Risk Theories on the Czech Stock Market

Popis výsledku anglicky

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.

Druh

D - Stať ve sborníku

CEP obor

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OECD FORD obor

50202 - Applied Economics, Econometrics

Projekt

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Návaznosti

S - Specificky vyzkum na vysokych skolach

Rok uplatnění

2019

Kód důvěrnosti údajů

S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů

Název statě ve sborníku

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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Počet stran výsledku

13

Strana od-do

291-303

Název nakladatele

Oeconomica

Místo vydání

Prague, Czech Republic

Místo konání akce

Praha

Datum konání akce

30. 5. 2019

Typ akce podle státní příslušnosti

WRD - Celosvětová akce

Kód UT WoS článku

000518586600024