An Empirical Analysis of Optimal Portfolio Selection using Sharpe's Optimization Dr. Nageswari P.*, Dr. Selvam M.**, Dr. Bhuvaneswari P.*** *Faculty, Department of Commerce, Bharathidasan University Constituent College, Lalgudi, Tiruchirappalli, India **Professor and Head, Department of Commerce and Financial Studies, Bharathidasan University, Tiruchirappalli, Tamil Nadu, India ***Faculty, PG Department of Commerce, Bharathidasan University College for Women, Orathanadu, Tanjavur, India Online published on 7 November, 2013. Abstract Portfolio analysis considers the determination of future risk and return in holding various blends of individual securities. In the rapidly developing and changing capital markets an average investor finds himself in a fix to make decisions regarding the purchase of securities. Therefore, the present study highlights the optimal portfolio selection using Sharpe's Single Index model, through which a significant reduction in the riskiness or variability of the return of securities can be obtained. It tries to provide guidance for investor's rescue from this situation. For the purpose of the study, BSE Sensex index and its securities daily closing prices was collected and analyzed from April 2007 to March 2012. The proposed method formulates a unique cut off point (Cut off rate of return) and selects stocks having excess of their expected return over risk free rate of return surpassing this cut-off point. Percentage of investment in each of selected stocks is then decided on the basis of respective weights assigned to each stock depending on respective beta value, stock movement variance unsystematic risk, return on stock and risk free return vis-a-vis the cut off rate of return. The optimal portfolio consists of six stocks selected out of 28 short listed scripts, giving the return of 10.91%. Top Keywords Portfolio Analysis, Capital Market, Optimal Portfolio Selection, Risk and Return, Sharpe's Single Index model, BSE Sensex index. Top |