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Talmud and Markowitz Diversification Strategies: Evidence from the Nigerian Stock Market

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  • Prince C Nwakanma
  • Monday Aberiate Gbanador

Abstract

The object of this study is to investigate Talmud and Markowitz diversification strategies using stocks quoted on the Nigerian Stock Exchange. The essence is to determine how each of these strategies compare with one another in terms of generating superior performance based on maximizing returns and minimizing risks. In addition, it examines the applicability of diversification to the Nigerian stock exchange regarding risk reduction and return maximization. This involved data on quarterly closing prices of 17 assets (companies) drawn from the Nigerian stock exchange for 17 years, equivalent to 68 periods. The three hypotheses formulated in the course of this study were tested using the difference between independent sample means (t – test). The null hypotheses of the three hypotheses were accepted. By implication this means that diversification can diversify away a reasonable amount of risk. Hence we recommend that Nigerian investors should apply Talmud diversification strategy since diversification is applicable to the Nigerian stock market. We further recommend that more sophisticated investors could still adopt Markowitz strategy since they possess the skills to do so. Investors should exercise caution by seeking the opinion of experts before committing their funds in the market.

Suggested Citation

  • Prince C Nwakanma & Monday Aberiate Gbanador, 2014. "Talmud and Markowitz Diversification Strategies: Evidence from the Nigerian Stock Market," Accounting and Finance Research, Sciedu Press, vol. 3(2), pages 145-145, May.
    • Handle: RePEc:jfr:afr111:v:3:y:2014:i:2:p:145
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    References listed on IDEAS

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    1. Tu, Jun & Zhou, Guofu, 2011. "Markowitz meets Talmud: A combination of sophisticated and naive diversification strategies," Journal of Financial Economics, Elsevier, vol. 99(1), pages 204-215, January.
    2. Louis K.C. Chan & Jason Karceski & Josef Lakonishok, 1999. "On Portfolio Optimization: Forecasting Covariances and Choosing the Risk Model," NBER Working Papers 7039, National Bureau of Economic Research, Inc.
    3. Chan, Louis K C & Karceski, Jason & Lakonishok, Josef, 1999. "On Portfolio Optimization: Forecasting Covariances and Choosing the Risk Model," The Review of Financial Studies, Society for Financial Studies, vol. 12(5), pages 937-974.
    4. Anurag N. Banerjee & Chi-Hsiou D. Hung, 2013. "Active momentum trading versus passive ' naive diversification'," Quantitative Finance, Taylor & Francis Journals, vol. 13(5), pages 655-663, January.
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    More about this item

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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