A comparison of Mean - variance and mean - semi variance optimization on the Nairobi Stock Exchange.pdf
Date
2015-11
Authors
Wasi, Mwabaya Fahari
Journal Title
Journal ISSN
Volume Title
Publisher
Strathmore University
Abstract
The main objectives of this paper were to measure and compare the portfolio performance of portfolios weighted through the mean variance and semi variance approach in the Kenyan context and to compare portfolio performance in terms of return between portfolios weighted using a Geometric Mean Variance Frontier Approach V s Semi Variance Approach. Equities used were from broad sectors of the NSE: Agricultural, Financial, Commercial and Services and Industrial.
Based on the empirical results, there is no significant advantage in using semi variance as a risk measure as compared to variance in optimization. This is because the equity returns in the Nairobi Stock Exchange follow a normal probability distribution. The geometric mean variance returns are also compared to the semi variance optimization methods and results show they statistically approximate each other. Key limitations for the study that NSE duration used may have been a unique case for a normal distribution. Further research needs to be done to ascertain whether the geometric mean variance optimization approximates the semi variance approach.
Description
Submitted in partial fulfillment of the requirements for the Degree of Bachelor in Business Science Actuarial at Strathmore University
Keywords
Semi variance, Mean Variance Optimization, NSE