Paper title: Portfolio Evaluation Based on Efficient Frontier Superiority Using Center of Gravity
Published in: Issue 3, (Vol. 4) / 2010Download
Publishing date: 2010-10-26
Pages: 93-97
Author(s): MOHAMED Zulkifli, MOHAMAD Daud, SAMAT Omar
Abstract. Investing in portfolio of assets is the best way to reduce the investment risk. The most desired portfolio can be obtained when investors chose to invest in the portfolios that lay on the portfolio’s efficient frontier. However, the superiorities of the portfolios are difficult to differentiate especially when the efficient frontier curves are overlapping. This paper proposed the portfolio’s efficient frontier center of gravity (CoG) and Euclidean distance to identify its superiority. A sample of 49 stocks of large-cap and small-cap were used to construct two hypothetical portfolios and its efficient frontiers. The Euclidean distance showed that the large-cap portfolio is superior and having wider feasible solutions compared to the small-cap portfolio. The results of new tool introduced are consistent with the conventional methods. Here the theoretical and practical implications are provided in light of the findings.
Keywords: Investment, Portfolio, Efficient Frontier, Center Of Gravity, Euclidean Distance.
References:

1. Markowitz, H. (1952) Portfolio Selection. Journal of Finance, 7(1), 77-91.

2. Scheel, W. C., Blatcher, W. J., Kirschner, G. S., & Denman, J. J. (2001) Is The Efficient Frontier Efficient? Proceedings of the Casualty Actuarial Society Arlington, Virginia.

3. Shalit, H., & Yitzhaki, S. (2002) Derivation of the MeanGini Efficient Portfolio Frontier. Social Science Research Network, or DOI: 10.2139/ssrn.341540 (Available at SSRN: http://ssrn.com/abstract=341540).

4. Merton, R. C. (1972) An Analytic Derivation of the Efficient Portfolio Frontier. Journal of Financial and Quantitative Analysis(September), 1851-1872.

5. Cheng, P., & Liang, Y. (2000) Optimal Diversification: Is it Really Worthwhile? Journal of Real Estate Portfolio Management, 6(1), 7-16.

6. Sazali, Z. A., Mohamed, A., Annuar, M. N., & Shamsher, M. (2004) International Portfolio Diversification: A Malaysian Perspective. Investment Management and Financial Innovation, 3, 51-68.

7. Zulkifli, M., Basarudin Shah, B., Norzaidi, M. D., & Chong, S. C. (2008) Portfolio diversification: the role of information technology in future investment decisionmaking. International Journal of Electronic Finance, 2(4), 451-468.

8. Evans, J., & Archer, S. (1968) Diversification and the reduction of dispersion. Journal of Finance, 23(5 ), 761- 767.

9. Statman, M. (1987) How many stocks makes a diversified portfolio? Journal of Financial and Quantitative Analysis, 22(3), 353-363.

10. Stewart, J. (2003) Calculus (5th edition). Florence, Kentucky, U.S.A.: Thomsons Brooks/Cole Pub Co.

11. Rosenberg, B., Reid, K., & Lanstien, R. (1985) Persuasive evidence of market inefficiency Journal of Portfolio Management, 11(3), 9-17. 12. Fama, E. F., & French, K. R. (1992) The cross-section of expected stock returns. Journ

Back to the journal content
Creative Commons License
This article is licensed under a
Creative Commons Attribution-ShareAlike 4.0 International License.
Home | Editorial Board | Author info | Archive | Contact
Copyright JACSM 2007-2020