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Modelling the Efficient Frontier: An Empirical Study in the Indian Stock Market

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  • Mihir Dash

    (Alliance University, India)

Abstract

The objective of the study was to understand the nature and shape of the efficient frontier for the Indian stock market over time, and to empirically examine Merton’s model for the efficient frontier in the context of the Indian stock market. The study was performed using a sample of fifty stocks that were part of the National Stock Exchange’s Nifty 50 index as of March 31, 2011. The study period was 2000-2011. The main finding of the study is that Merton’s model does not entirely explain the relationship between variance of returns and mean returns on the efficient frontier. Thus, a higher-order polynomial function may be more appropriate for modelling the efficient frontier. Also, the factors affecting the efficient frontier need to be studied in future studies.

Suggested Citation

  • Mihir Dash, 2018. "Modelling the Efficient Frontier: An Empirical Study in the Indian Stock Market," Journal of Applied Management and Investments, Department of Business Administration and Corporate Security, International Humanitarian University, vol. 7(2), pages 83-94, May.
    • Handle: RePEc:ods:journl:v:7:y:2018:i:2:p:83-94
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    References listed on IDEAS

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    Cited by:

    1. Tamara A. Horobets, 2020. "Measuring Performance of the SMEs: A Case of Ukraine," Journal of Applied Management and Investments, Department of Business Administration and Corporate Security, International Humanitarian University, vol. 9(4), pages 162-168, December.

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    More about this item

    Keywords

    efficient frontier; Indian stock market; Merton’s model; polynomial function;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis

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