Application of Luenberger Shortage Function on the Zagreb Stock Exchange: Analysis of Efficient Market Portfolios
In order to apply the CAPM in practice, the estimation of the market portfolio presents one of the biggest challenges. Even more so after the research in early 1990's pointed out the mean-variance inefficiency of stock market capitalization-weighted indices. In the paper we perform an in-sample...
| Main Authors: | , , |
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| Format: | Article |
| Language: | English |
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Croatian Operational Research Society
2018-01-01
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| Series: | Croatian Operational Research Review |
| Online Access: | http://hrcak.srce.hr/file/310556 |
| _version_ | 1818333932535414784 |
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| author | Denis Dolinar Tihana Škrinjarić Davor Zoričić |
| author_facet | Denis Dolinar Tihana Škrinjarić Davor Zoričić |
| author_sort | Denis Dolinar |
| collection | DOAJ |
| description | In order to apply the CAPM in practice, the estimation of the market portfolio presents one of the biggest challenges. Even more so after the research in early 1990's pointed out the mean-variance inefficiency of stock market capitalization-weighted indices. In the paper we perform an in-sample optimization for the CROBEX index constituents to test its efficiency ex post. Selected CROBEX index revisions from the period March 2005 – September 2017 are analysed. We find the index to be inefficient which confirms the results of earlier studies. However, since mean-variance optimization often yields extreme portfolio weights, thus reducing the effective number of stocks in the portfolio, the focus of this research is on testing if improvement in efficiency over the CROBEX index is possible, with respect to the portfolio deconcentration level. The Luenberger’s shortage function is added to the optimization algorithm in order to increase the number of efficient portfolios analysed. |
| first_indexed | 2024-12-13T13:59:30Z |
| format | Article |
| id | doaj.art-80bc2614b93c4e87b27b0dcd8e739315 |
| institution | Directory Open Access Journal |
| issn | 1848-0225 1848-9931 |
| language | English |
| last_indexed | 2024-12-13T13:59:30Z |
| publishDate | 2018-01-01 |
| publisher | Croatian Operational Research Society |
| record_format | Article |
| series | Croatian Operational Research Review |
| spelling | doaj.art-80bc2614b93c4e87b27b0dcd8e7393152022-12-21T23:42:47ZengCroatian Operational Research SocietyCroatian Operational Research Review1848-02251848-99312018-01-019218319710.17535/crorr.2018.0014212379Application of Luenberger Shortage Function on the Zagreb Stock Exchange: Analysis of Efficient Market PortfoliosDenis Dolinar0Tihana Škrinjarić1Davor Zoričić2Faculty of Economics and Business, University of Zagreb, Zagreb, CroatiaFaculty of Economics and Business, University of Zagreb, Zagreb, CroatiaFaculty of Economics and Business, University of Zagreb, Zagreb, CroatiaIn order to apply the CAPM in practice, the estimation of the market portfolio presents one of the biggest challenges. Even more so after the research in early 1990's pointed out the mean-variance inefficiency of stock market capitalization-weighted indices. In the paper we perform an in-sample optimization for the CROBEX index constituents to test its efficiency ex post. Selected CROBEX index revisions from the period March 2005 – September 2017 are analysed. We find the index to be inefficient which confirms the results of earlier studies. However, since mean-variance optimization often yields extreme portfolio weights, thus reducing the effective number of stocks in the portfolio, the focus of this research is on testing if improvement in efficiency over the CROBEX index is possible, with respect to the portfolio deconcentration level. The Luenberger’s shortage function is added to the optimization algorithm in order to increase the number of efficient portfolios analysed.http://hrcak.srce.hr/file/310556 |
| spellingShingle | Denis Dolinar Tihana Škrinjarić Davor Zoričić Application of Luenberger Shortage Function on the Zagreb Stock Exchange: Analysis of Efficient Market Portfolios Croatian Operational Research Review |
| title | Application of Luenberger Shortage Function on the Zagreb Stock Exchange: Analysis of Efficient Market Portfolios |
| title_full | Application of Luenberger Shortage Function on the Zagreb Stock Exchange: Analysis of Efficient Market Portfolios |
| title_fullStr | Application of Luenberger Shortage Function on the Zagreb Stock Exchange: Analysis of Efficient Market Portfolios |
| title_full_unstemmed | Application of Luenberger Shortage Function on the Zagreb Stock Exchange: Analysis of Efficient Market Portfolios |
| title_short | Application of Luenberger Shortage Function on the Zagreb Stock Exchange: Analysis of Efficient Market Portfolios |
| title_sort | application of luenberger shortage function on the zagreb stock exchange analysis of efficient market portfolios |
| url | http://hrcak.srce.hr/file/310556 |
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