Optimal Portfolios Selection Under Limited Diversification in the Emerging Egyptian Stock Market

摘要

This study focuses on deriving and designing optimal portfolios from within alternative investment to assist the investor in rationalizing his investment decisions. The objective was to benefit from the advanced modern of the portfolio theory in designing a simple model. The study also aims at developing an understanding of whether some of the most basic concepts of diversification and portfolio selection are applicable in the Emerging Capital Market. The objective of this is to verify its efficiency in deriving the required portfolios.Five main portfolio design models will be analyzed. Five main portfolio design models will be analyzed, firstly Markowitz model which known to be the best and most practical model in deriving the optimal portfolios. But its complexity and high cost of application. Secondly the Single Index Model (SIM), thirdly is Constant Correlation Model (CCM). The second and the third models are based on the EGP algorithm method, which based on capital market theory. Fourthly model is Sankaran and Patil model (SP) which based on "get portfolio" procedure. This procedure is the same as the CCM model based on EGP except for the explicit computation of the optimal weight for each value of optimal portfolios. Fives the suggested model- borrowed from the Markowitz and CCM models. In addition to above models the study used the SP model to identify the marginal benefit of diversification in the Egyptian capital market. Finally the study referred to the De Wit model for calculating the required excess return from an imperfect diversification portfolio. The results from testing and comparing the five models in the two samples showed that the emerging Egyptian capital market is efficient in deriving optimal portfolios, Moreover the most basic concepts of diversification and portfolio selection are applicable in this market.