Relative performance of the single index versus mean variance optimization in equity portfolio construction in Kenya
Date
2016
Authors
Nyokangi, Chris Ogetii
Journal Title
Journal ISSN
Volume Title
Publisher
Strathmore University
Abstract
This study focuses on comparing the performance of the single index model and mean variance optimization model in portfolio construction in Kenya using the Nairobi Securities Exchange-20 Share Index from 2002-2015. The comparison is done by constructing portfolios using both the single index model and mean variance optimization model. The Sharpe ratio is used to determine which model is better, as indicated by the higher Sharpe ratio. The study establishes that the mean variance optimization model is better when considering investments with long time horizon, whereas the single index model is better when considering investments with short time horizon. The study also concludes that the mean variance optimization model is better if the investors are risk averse, while the single index model is better when considering investors who are risk lovers.
Description
Submitted in partial fulfillment of the requirements for the Degree of Master of Business Administration (MBA)
Keywords
Kenya, Relative performance, Single index, Mean variance, equity portfolio construction, Sharpe ratio, mean variance optimization model, NSE