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The Structure of the Investment Portfolio on the Markets with Asymmetric Distribution of Return

Student: Ekaterina Alekseeva

Supervisor: Alexander Osharin

Faculty: Faculty of Economics

Educational Programme: Economics (Bachelor)

Year of Graduation: 2017

A fundamental question in financial field is how the risk of investment can affect its expected return. The CAPM (Capital Asset Pricing Model) provided the first initial backgrounds for answering this question. Proposed in the early 1960s by William Sharpe, the CAPM gives us the understanding about what kind of risk is related to return. However the main problem is that CAPM is based on rigid theoretical assumptions that cannot be implemented completely in practice – it is the cause of numerous criticisms and disputes nowadays. The paper presents a study of the key ideas of the Capital Asset Pricing Model and their development in a historical context. There was also shown the unquestionable importance of such a model for the stock market. One of the main features of the paper is that other various modifications of CAPM are tested – one-sided risk models, for the calculation of which a semivariance is used. The research makes a parallel between the traditional approaches (the CAPM) and the one-sided approaches: the ES-CAPM by Hogan-Warren, the LPM-CAPM by Bawa-Lindenberg, the Harlow-Rao model, the D-CAPM by J. Estrada. The combination of the different algorithms allows calculating the beta coefficients and estimating the expected return for each method in order to choose the best approach of selecting an investment portfolio. For the analysis, data were used in two arrays: the daily and monthly returns of the most liquid shares of the Russian stock market, which are included in the calculation base for the RTS market index. The initial data covered the prices of shares for the period from January 2010 to January 2017. As a result, the hypothesis about the superiority of one-sided CAPM models over the traditional one was confirmed both in regression analysis and in the direct formation of the investment portfolio structure.

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