A Study on portfolio construction by using Sharpe’s single index model
Author Name : Mr. Vinayak Kittad, Dr. Anil Yaragatti,
An attempt is made here to get an insight into the idea embedded in Sharpe’s single index model and to construct an optimal portfolio empirically using this model. Taking NSE Nifty 50 as market performance index and considering monthly indices along with the monthly prices of sampled securities for the period of April 2010 to March 2020, the proposed method formulates a unique cut-off rate and selects those securities to construct an optimal portfolio whose excess return to beta ratio is greater than the cut-off rate. Then, proportion of investment in each of the selected securities is computed on the basis of beta value, unsystematic risk, excess return to beta ratio and cut-off rate of each of the securities concerned.