2016•Journals & Books Hosting (International Knowledge Sharing Platform)Open access
Determination of Optimal Portfolio by Using Tangency Portfolio and Sharpe Ratio
Hakan Bilir
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Abstract
In this paper, I tested workability of mean- variance approach and Sharpe ratio on Istanbul Stock Exchange (BIST). 12 months of data belonging a year of 2015 are analyzed. My initial portfolio involves ten stocks with equal weights. They are chosen from different industries for diversification issue. Then, I followed Markowitz model to determine optimal portfolios. I created many portfolios for given expected return with minimum variance. They all are efficient portfolios. They are located over efficient frontier which shows maximum return with minimum variance. Which one is the best? The optimal one is selected by using tangency portfolio analysis and Sharpe ratio. It provides nearly three times more return comparing with a portfolio with equal shares of ten stocks. Keywords: Sharpe ratio, mean-variance approach, tangency portfolio, optimal portfolio
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