Constructing optimal stock portfolio with Markowitz Model

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A portfolio is a collection of financial assets consisting of investment tools such as stocks, bonds, gold, foreign exchange, asset-backed securities, real estate certificates and bank deposit which are held by a person or a group of persons. In Ghana, constructing portfolio with standardized optimization model still remains a myth. In this paper, we analyze the applicability of the classical Markowitz model on the Ghana Stock Exchange. We further determine which Stock-index is profitable for an investor; thus should the investor invest in the GSE-All-Share Index, Non-financial Index, or the Financial Index given the current performance of the indices. Historical monthly data of stock prices, market capitalization and dividend per share from 2007 to 2010 were used to compute the market indices. The study concludes that it is profitable for an investor to invest 83.44% of his capital in the non-financial index while investing 16.56% in the financial index. We further conclude that the Ghanaian stock market obeys the tenet of the Markowitz model.
A Thesis submitted to the School of Graduate Studies, Kwame Nkrumah University of Science and Technology, Kumasi, in partial fulfilment of the requirements for the Degree of Master of Science in Industrial Mathematics, May-2012