engleski

TRANSITION CAPITAL MARKETS COMPARISON BY EFFICIENT FRONTIERS

In the paper efficient portfolios, i.e. efficient frontiers are calculated on the capital markets of the 5 transition countries from the group of the South Eastern European (SEE) countries: Bosnia and Herzegovina, Bulgaria, Croatia, Romania and Serbia. The contemporary theory of portfolio management as introduced by H. M. Markowitz is based on observation of relative increase in the securities prices and the definition of return as their mathematical expectation, and risk as their variance. It is important to point out that in this mean-variance (M-V) model, the assumption of the normal distribution of stock’ s returns must be satisfied, but in practice it has almost never been verified. In such cases the variance is not the adequate risk measure. Because of the non-normality of the data in this study, the lower semi-variance as alternative risk measure is applied. It can be said that it is the measure of risk which retains good properties of variance and overcomes its disadvantages. After presenting the elements of the theory, we calculate the efficient (optimal) portfolios on the capital markets of observed countries. The securities for each country are selected according to: (1) their inclusion in the capital market indices baskets on 17th July 2006, and (2) their presence on the market from February 2004 to March 2006. The period taken in to consideration is reasonable if we look at existence and stability conditions on observed capital markets. By programming in MATLAB ten efficient portfolios and appropriate efficient frontiers are calculated for each observed country. The results are compared and interpreted in terms of conditions on the transitional South East European Capital markets, and guidelines are given for the use of the obtained results in practice.

transition capital markets; efficient frontier; alternative risk measure

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