CONSTRUCTION OF OPTIMAL PORTFOLIO USING SHARPE’S SINGLE INDEX MODEL

Abstract

Portfolio of securities can comprise combination of financial securities. The combination may be equity stock, debit securiti es/ bonds, preference stock, or money market instruments. The well balanced portfolio of securities will give a minimum risk with a maximum return. Constructing an optima l portfolio is a difficult task for the individual inventors. Investor can minimise the risk and maximize return by investing on optimal portfolio of securities. But, construction of optimal portfolio is a difficult task when more assets are under evaluation. William Sharpe has simplified the process of construction of portfolio by relating the return in a security to a single market index with his Single Index model. The aim of the study is to construct optimal portfolio using Sharpe’s Single Index model taking 15 stocks listed at Bombay Stock Exchange (BSE). With use of simpl e random sampling the researcher selected 15 stocks from the top 100 stocks listed at BSE. Seven stocks were occupied space in the optimal portfolio of stocks. They are DIVI’s Laboratories (39.17%), Wipro (12.77%), Nestle India (21.12%), Asian Paints (14.96%), Cipla (6.63%), Bajaj Finance (3.8 4%), and JSW Steel (1.51%).