efficient portfolio construction
TRANSCRIPT
Mohammed Robiul Alam13-024Department of FinanceUniversity of Dhaka
Selected Sector
Selected Company
BOC BANGLADESH
EASTERN HOUSING LIMITED
APEX TANNERY LIMITED
FAREAST ISLAMI LIFE INSURANCE CO.
ADVANCED CHEMICAL INDUSTRIES LIMITED
ATLAS BANGLADESH LIMITED.
USMANIA GLASS SHEET FACTORY LIMITED
CONFIDENCE CEMENT
NATIONAL BANK LIMITED.
IDLC FINANCE LIMITED
Selection Criteria
Listed In DSEListed on Before 1 January 2006‘A’ Category StockSteadiness in EPS and NAVStability in Dividend Pattern
Data Collection and Formation
Five years daily trade data from 1st January 2006 to
31st December 2010
Day wise closing price of each company
Adjusted dividend with daily closing price
Averaged daily adjusted price for monthly price date
Dividend AdjustmentCash Dividend:
Bonus Share:
Right Share:
Spilt:
Use spilt ratioDividend Adjustment
Dividend Adjusted Data
Return Calculation
Return Calculation
Return = LN(Price of X month/Price of X-1 month)
Risk Free Rate of Return
YearSix Month T-Bill
2010 0.04852009 0.05752008 0.0582007 0.05822006 0.0585
Rf Monthly 0.004675
Excess Return and Covariance Matrix
Excess Portfolio Return
0.0374051
Portfolio Variance 0.0044756Portfolio Standard Deviation 0.06689995Theta 0.55911995∑Wi 1
Θ
Equal investment in each security
Scenario Analysis
Maximize Theta by not allowing short sellMaximize Theta by allowing short sellMinimize Standard Deviation by not allowing short
sellMinimize Standard Deviation by allowing short sellMinimize Standard Deviation by not allowing short
sell for a given returnMinimize Standard Deviation by allowing short sell
for a given return
Maximize Theta by not allowing short sell
Excess Portfolio Return 0.043453Portfolio Variance 0.003896Portfolio Standard Deviation 0.06242Theta 0.696147∑Wi 1
BOC BANGLADESH 0.102338EASTERN HOUSING LIMITED 0.147688APEX TANNERY LIMITED 0FAREAST ISLAMI LIFE INSURANCE CO. 0.09444ADVANCED CHEMICAL INDUSTRIES LIMITED 0.175407ATLAS BANGLADESH LIMITED. 0USMANIA GLASS SHEET FACTORY LIMITED 0CONFIDENCE CEMENT 0.159898NATIONAL BANK LIMITED. 0.151164IDLC FINANCE LIMITED 0.169066
Excel
Maximize Theta by allowing short sell
Excess Portfolio Return 0.06047002Portfolio Variance 0.0052386Portfolio Standard Deviation 0.0723782Theta 0.83547284∑Wi 1
BOC BANGLADESH 0.09273903
EASTERN HOUSING LIMITED 0.20832873
APEX TANNERY LIMITED 0.35270042
FAREAST ISLAMI LIFE INSURANCE CO. 0.27579077
ADVANCED CHEMICAL INDUSTRIES LIMITED -0.615287
7ATLAS BANGLADESH LIMITED. 0.232811
32USMANIA GLASS SHEET FACTORY LIMITED 0.09287CONFIDENCE CEMENT 0.168722
36NATIONAL BANK LIMITED. 0.092739
03IDLC FINANCE LIMITED 0.208328
73
Excel
Minimize Standard Deviation by not allowing short sell
Excess Portfolio Return 0.0372811Portfolio Variance 0.00335171Portfolio Standard Deviation 0.05789396Theta 0.64395502∑Wi 1
BOC BANGLADESH 0EASTERN HOUSING LIMITED 0.084859
26APEX TANNERY LIMITED 0.196947
5FAREAST ISLAMI LIFE INSURANCE CO. 0.007656
27ADVANCED CHEMICAL INDUSTRIES LIMITED 0ATLAS BANGLADESH LIMITED. 0.048600
27USMANIA GLASS SHEET FACTORY LIMITED 0.199567
99CONFIDENCE CEMENT 0.065007
45NATIONAL BANK LIMITED. 0IDLC FINANCE LIMITED 0.084859
26
Excel
Minimize Standard Deviation by allowing short sell
Excess Portfolio Return
0.03856169
Portfolio Variance 0.0033409
Portfolio Standard Deviation 0.0578005
Theta 0.66715148
∑Wi 1
BOC BANGLADESH 0.26442842
EASTERN HOUSING LIMITED 0.12036211
APEX TANNERY LIMITED 0.00168979
FAREAST ISLAMI LIFE INSURANCE CO. 0.09335546
ADVANCED CHEMICAL INDUSTRIES LIMITED 0.20955164
ATLAS BANGLADESH LIMITED. 0.04539863
USMANIA GLASS SHEET FACTORY LIMITED -0.050877
1CONFIDENCE CEMENT 0.053901
85NATIONAL BANK LIMITED. 0.194014
44IDLC FINANCE LIMITED 0.068174
78
Excel
Minimize Standard Deviation by not allowing short sell for a given return
Portfolio Return 0.05Excess Portfolio Return 0.045325
Portfolio Variance0.004283
65Portfolio Standard Deviation
0.06544956
Theta0.692517
99∑Wi 1Given Return 0.05
BOC BANGLADESH0.0474
67
EASTERN HOUSING LIMITED0.1557
55APEX TANNERY LIMITED 0
FAREAST ISLAMI LIFE INSURANCE CO.0.0972
88ADVANCED CHEMICAL INDUSTRIES LIMITED
0.168222
ATLAS BANGLADESH LIMITED. 0USMANIA GLASS SHEET FACTORY LIMITED 0
CONFIDENCE CEMENT0.1939
04
NATIONAL BANK LIMITED.0.1361
23
IDLC FINANCE LIMITED0.2012
41
Excel
Minimize Standard Deviation by allowing short sell for a given return
Portfolio Return 0.05Excess Portfolio Return 0.045325
Portfolio Variance0.003521
65Portfolio Standard Deviation
0.05934348
Theta0.763773
83∑Wi 1Given Return 0.05
BOC BANGLADESH0.1906
27
EASTERN HOUSING LIMITED0.1342
08
APEX TANNERY LIMITED0.0298
15
FAREAST ISLAMI LIFE INSURANCE CO.0.1290
24ADVANCED CHEMICAL INDUSTRIES LIMITED
0.253927
ATLAS BANGLADESH LIMITED.0.1164
81
USMANIA GLASS SHEET FACTORY LIMITED
-0.2250
7
CONFIDENCE CEMENT0.1091
64
NATIONAL BANK LIMITED.0.1625
66
IDLC FINANCE LIMITED0.0992
56
Excel