Asset Portfolio Optimization of Some Selected Equities Using Geometric Mean and Semivariance



The oldest question on the stock market probably is which portfolio is the best. Fund Managers answer this question using arithmetic mean as a measure of returns on equity and the variance as an appropriate measure of equity risk. However, these two measures have a setback. In this research, we employ the geometric mean and semivariance in an optimal portfolio formation of some selected equities on the Ghana Stock Exchange. A historical data of the best six performing equities in the Ghana Stock exchange in the year 2015 was obtained from the Ghana stock exchange to measure the risk in equity selection. The methods used were geometric mean of the returns on the equity prices, their semivariance, variance, correlation, utility function. Maximisation function and the minimisation function of the semivariance and the sharpe ratio. The results revealed that the equities with the highest Sharpe Ratio were CAL Bank Limited (CAL), Ghana Commercial Bank (GCB), and Enterprise Group Limited (EGL). A minimum variance portfolio of 0.4 GCB, 0.1 CAL, and 0.5 EGL, with portfolio risk of 0.00072 and portfolio returns of 0.02148 with a Sharpe Ratio 0.72758. Efficient frontier portfolio of 0.5 GCB, 0.1 CAL and 0.4 EGL,0.5 GCB, 0.2 CAL and 0.3 EGL,0.5 GCB, 0.3 CAL and 0.2 EGL, 0.5 GCB, 0.4 CAL and 0.1 EGL were obtained. 



asset portfolio, geometric mean, semivariance, sharpe ratio

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