The relationship between portfolio selection and performance of large-cap stocks in Nairobi Exchange

Ing. Mercy Kosgei

Master's thesis

Abstract:

This thesis aimed to construct an efficient portfolio to help current and potential investors in the Nairobi Securities Exchange to make investment choices. The portfolio was constructed using constituents of the Nairobi Security Exchange Twenty Index (NSE 20). The NSE 20 is constructed using the shares with the largest capitalization, the construction is revised during every quarter. In the thesis, the portfolios were constructed using thirteen stocks v 1 January 2019 to 31 December 2021. The constructions were guided by the arguments in the Modern Portfolio Theory, Utility Theory, and risk and diversification considerations. The results show that portfolios,s constructed using minimum variance and tangent portfolios perform differently. The findings suggest that a good selection of the portfolio's constituents and the prevailing economic conditions determine the portfolio's performance.

Abstract:

This thesis aimed to construct an efficient portfolio to help current and potential investors in the Nairobi Securities Exchange to make investment choices. The portfolio was constructed using constituents of the Nairobi Security Exchange Twenty Index (NSE 20). The NSE 20 is constructed using the shares with the largest capitalization, the construction is revised during every quarter. In the thesis, the portfolios were constructed using thirteen stocks v 1 January 2019 to 31 December 2021. The constructions were guided by the arguments in the Modern Portfolio Theory, Utility Theory, and risk and diversification considerations. The results show that portfolios,s constructed using minimum variance and tangent portfolios perform differently. The findings suggest that a good selection of the portfolio's constituents and the prevailing economic conditions determine the portfolio's performance.

Keywords

Expected Return, Optimal Portfolio, Single Index Model, Sharpe Ra-tio

Language used: English

Date on which the thesis was submitted / produced: 3. 7. 2023

Thesis defence

• Date of defence: 31. 1. 2024
• Supervisor: Ing. Dagmar Vágnerová Linnertová, Ph.D.
• Reader: Ing. Luděk Benada, Ph.D.

Masaryk University

Faculty of Economics and Administration

Master programme / field:
Finance / Finance