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2010•Unpublished venueRequires access

Merge between preference theory and CAPM efficient frontier: Towards an optimum portfolio of upstream projects

Omar Gharaibeh, Natheer K. Gharaibeh

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Abstract

The goal of this paper is to present the relationship between numerical optimaization tools applied to investments and preference theory, using utility risk - aversion functions in the determination of optimum portfolio for the upstream sector. The relationship between portfolio performance and the number of stocks held in the portfolio has long been of interest to many financial economists ever since Markowitz (1952) proposes his modern portfolio theory. Markowitz describes how portfolio risk can be effectively reduced by increasing the number of stocks held in the portfolio. In this paper, we took four projects in industry sector in the Economic Aqaba region in Jordan and tried to measure the relationship between portfolio performance and CAPM efficient frontier, the main feature of this paper is the integration between CAPM and Risk Analysis through the preference Theory.

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What this paper is about

The goal of this paper is to present the relationship between numerical optimaization tools applied to investments and preference theory, using utility risk - aversion functions in the determination of optimum portfolio for the upstream sector. The relationship between portfolio performance and the number of stocks held in the portfolio has long been of interest to many financial economists ever since Markowitz (1952) proposes his modern portfolio theory. Markowitz describes how portfolio risk can be effectively reduced by increasing the number of stocks held in the portfolio. In this paper, we took four projects in industry sector in the Economic Aqaba region in Jordan and tried to measure the relationship between portfolio performance and CAPM efficient frontier, the main feature of this paper is the integration between CAPM and Risk Analysis through the preference Theory.

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Available abstract

The goal of this paper is to present the relationship between numerical optimaization tools applied to investments and preference theory, using utility risk - aversion functions in the determination of optimum portfolio for the upstream sector. The relationship between portfolio performance and the number of stocks held in the portfolio has long been of interest to many financial economists ever since Markowitz (1952) proposes his modern portfolio theory. Markowitz describes how portfolio risk can be effectively reduced by increasing the number of stocks held in the portfolio. In this paper, we took four projects in industry sector in the Economic Aqaba region in Jordan and tried to measure the relationship between portfolio performance and CAPM efficient frontier, the main feature of this paper is the integration between CAPM and Risk Analysis through the preference Theory.

Key concepts: Efficient frontier, Portfolio, Post-modern portfolio theory, Capital asset pricing model, Modern portfolio theory, Financial economics, Portfolio optimization, Preference

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Merge between preference theory and CAPM efficient frontier: Towards an optimum portfolio of upstream projects — Research Paper | ScholarLens