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Portfolio selection in thinly traded environments—a case study
Author(s) -
Barr Graham D. I.,
Bradfield David J.
Publication year - 1988
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.4090090407
Subject(s) - portfolio , estimator , stock exchange , econometrics , capital asset pricing model , market portfolio , expected return , selection (genetic algorithm) , asset (computer security) , computer science , economics , financial economics , mathematics , finance , statistics , computer security , artificial intelligence
This paper proposes a flexible technique for selecting portfolios in an environment which includes thinly traded shares. The proposal uses the Capital Asset Pricing Model with a thinly traded beta estimator to generate the expected return input. This technique has the advantage of being applicable when the opportunity set includes well‐traded securities, as the beta estimator converges to the ordinary least squares beta for well traded shares. In addition, it allows portfolio estimation to be carried out under a range of expected market performance scenarios. An empirical study on the Johannesburg Stock Exchange over the period 1974–85 indicates that the proposed method is superior to traditional techniques.