In this paper, we examine the behavior of a stock portfolio in reaction to possible fluctuations in the stock market. Our analysis is based on stress test and simulation techniques. Using historical data, we construct a portfolio (profile portfolio) with specific characteristics for volatility, return and beta coefficient. Our simulations suggest that adjustments must be made in a portfolio's composition in order to obtain maximum return or minimum risk, with respect to investors' preferences. We conclude that an asset manager can achieve the highest return by keeping his original position in the medium risk shares and adjusting his original position for the low and high risk shares. Finally, we compare different portfolios based on market capitalization and we obtain an optimum composition.
|Number of pages||9|
|Journal||Investment Management and Financial Innovations|
|Publication status||Published - 2007|
- Beta coefficient
- Dynamic system
- Portfolio management
- Stress test