Covariance model for portfolio construction - The case of Taiwan 50 Index

• Main Authors: Yu-Min Hung, 洪瑜敏
• Other Authors: Chu-Hsiung Lin
• Format: Others
• Language: zh-TW
• Published: 2013
• Online Access: http://ndltd.ncl.edu.tw/handle/9zc4m8

碩士 === 國立高雄第一科技大學 === 風險管理與保險研究所 === 101 === With rapid economic development and a wide range of financial instruments, stock has recently become a heavily used investment tool. Therefore, how to build an optimal stock portfolio is an important issue for the investors. This research uses monthly data of Taiwan 50 Index from establishment to June 30, 2011 to test equipartition method and Elton et al.’s (1976) covariance model. We used Realized Returns, Jensen Index, Sharpe Index and Treynor Index and return of Taiwan 50 Index to compare performance of portfolio. The empirical results show that : 1. Under comparison of Jensen Index, Sharp Ratio and Treynor Index, for portfolio of constituent stock in Taiwan 50 Index no matter in Geometric Average Method or Simple Average Method, it has better performance in covariance method. 2. If excluded 2 stocks that established within 1 year, under comparison of Jensen Index, Sharp Ratio and Treynor Index, for 48 portfolios of stock in Taiwan 50 Index no matter in Geometric Average Method or Simple Average Method, it has better performance in equipartition method. 3. When ρ=0.4, no matter in Geometric Average Method or Simple Average Method, it has better performance in equipartition method. While ρ=0.6, only under Treynor iii Index that it has better performance in equipartition method of calculated result from Geometric Average Method and it has better performance in covariance method under Sharp Ratio and Jensen Index. Although there are some differences in the results of 50 and 48 portfolios of stock, no matter it is Geometric Average Method or Simple Average Method, it doesn’t defeat market index. It truly has its representation of portfolios of stock for constituent stock in Taiwan 50 Index after being strictly screened top 50 public listed companies. Therefore, if the investors want to invest in Taiwan stock market, ETF can be a reference.