INEFFICIENT CAPITAL MARKETS
PORTFOLIO OPTIMIZATION IN INEFFICIENT CAPITAL MARKETS
Fatih Sargın
Inefficient capital markets has usually high inflation rates and rates of interest. Like these stock exchange market indexes have serial corelations between rates of return. Also, rates of return according to Markowitz’s Modern Portfolio Theory has been used ex – post expected rates of return. But, risk adjusted rates of return between optimum potfolios and its performances is usually inconsistent. And these portfolios show underperformance. For this reason, an optimum portfolio has to target performance portfolio. In other words, An Optimum Portfolio has to be expected performance portfolio, not to be ex-post expected optimum portfolio.
For this;
1) Rates of return and rates of interest has to be log – real rates(logaritmic and real rates)
2) An optimum ex – ante portfolio should consist of 10 – 15 securities at least(added restriction)
3) Risk adjusted log – real rates series(five years) of Both Optimum Portfolios and its performance portfolios should be found.
4) Corelations between these series should be counted.
5) The corelation between ex – post optimum portfolio series and its performance series should be reflected expected ex – ante rate of return and risk
This idea blongs to Fatih Sargın.
If u want to improve this model, you can connect to me by my msn adress:
My Studies will continue…
Fatih Sargın
