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Abstract
Markowitz an Sharpe's models are meant to create risk averse portfolios for an investor, however the portfolios created by both the models are different in many ways because the two models give emphasis on different parameters while constructing a portfolio. There is a need to understand these parameters so that an investor will know what his priorities are. This research is meant to draw understanding from the calculations of both the models with the objective of finding out how and on what basis portfolios are made from the two models. This paper compares the two models on the basis of different parameters like Risk and Return. The study is helpful to understand how to construct a mean variance portfolio set of Markowitz and optimum model of Sharpe in Indian stock market. The study focuses on stocks selected from NSE.T test has been used to validate if there are any significant differences or not with the results of the two techniques.
Keywords: Investment, Portfolio, Risk, Returns, Market Index
JEL Classification: G11
(ProQuest: ... denotes formulae omitted.)
INTRODUCTION
Harry M.Markowitz (in 1952) has developed a model which tries to practically implement the saying 'not to place all your eggs in one basket'. He says that to minimise risk of an investment the investor should diversify his investments, which means he should invest in multiple securities (portfolio) by doing so the risk is spread throughout the portfolio and isn't concentrated to just one security and hence the risk becomes diluted. Overall, investors should invest in portfolios and not in single securities. Markowitz model is meant for selecting optimal portfolio by Risk averse investors. Markowitz suggests that the value of a security can be evaluated by its mean return, Standard deviation (risk), and Correlation among other securities in the portfolio. He proposed that the investors focus on choosing portfolios based on their overall risk and return characteristics. He says that we can construct large number of portfolios by combining security and by varying the proportion of investment among assets. Among the sets of portfolios formed some are efficient and many others are inefficient.
SHARPE'S PORTFOLIO SELECTION MODEL
William Sharpe (In 1963) came up with a model where he selects a security based on
1) Excess Return or...