Building an Efficient Portfolio Using Sharpe’s Single Index Model(An Empirical Study With Reference to Nifty 50)

Authors

  • S. Sangeetha Asst. Prof., Commerce(cs), Saradha Gangadharan college, Velrmapet, Puducherry, India
  • K. Madane HOD, Commerce(cs), Saradha Gangadharan College, Velrampet, Puducherry,India
  • J. Muralidaran Asst. Prof., Commerce(cs), Saradha Gangadharan college, Velrmapet, Puducherry,India

DOI:

https://doi.org/10.46977/apjmt.2021v02i02.002

Keywords:

Return, Beta, Systematic Risk, Unsystematic Risk

Abstract

In recent years, construction of an optimal portfolio has become progressively more challenge, since investors expect maximum return with minimum risk from their respective investment. To achieve this, the investor needs to have appropriate knowledge about the security analysis and portfolio theory for making accurate investment decisions. Even though Harry Markowitz developed a comprehensive model which stated that investors can reduce their risk through diversification, this research paper uses Sharpe ‘s Single Index Model (SIM) to construct an optimal portfolio. Reason being SIM requires very few inputs and is easier to calculate. The results showed that, forty-two stocks were bullish during the study period and benefitted investor with positive returns consistently and eight stocks showed negative trend/returns. As per the results obtained from the model, Optimal Portfolio is built by selecting twelve stocks which are above the cut off rate. This paper throws light not only on the method of constructing the portfolio and its application, but also calculates intrinsic value for the above selected stocks. As the result only 10 stocks show progressive intrinsic value. This research paper found that though nifty 50 was down by 7500 points by last of march, Pharmaceutical field securities strived due to covid 19 crisis.

Downloads

Download data is not yet available.

References

Joshi, H. S. (2015). Practical application of modern portfolio theory.

Mandal, N. (2013). Sharpe’s single index model and its application to construct optimal portfolio: an empirical study. Great Lake Herald, 7(1), 1-19.

Nalini, R. (2014). Optimal Portfolio construction using Sharpe’s Single Index Model-A study of selected stocks from BSE. International Journal of Advanced Research in Management and Social Sciences, 3(12), 72-93.

Saravanan, A., & Natarajan, P. (2012). Optimal portfolio construction with Nifty stocks (An analytical prescription for investors). Advances in Management.

Varadharajan, P. (2011). Portfolio construction using the Sharpe index model with reference to banking and information technology sectors. Prime Journal of Business Administration and Management, 1(12), 392-398.

Securities-wise Archive (Equities). (2020, October 5). Retrieved from https://www1.nseindia.com/products/content/equities/equities/eq_security.htm

Published

2021-10-01

How to Cite

S. Sangeetha, K. Madane, & J. Muralidaran. (2021). Building an Efficient Portfolio Using Sharpe’s Single Index Model(An Empirical Study With Reference to Nifty 50). Asia-Pacific Journal of Management and Technology (AJMT), 2(2), 11-21. https://doi.org/10.46977/apjmt.2021v02i02.002

Metrics