IDEAS home Printed from https://ideas.repec.org/a/jfr/afr111/v3y2014i2p145.html
   My bibliography  Save this article

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

Author

Listed:
  • 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
    as

    Download full text from publisher

    File URL: https://www.sciedupress.com/journal/index.php/afr/article/download/4786/2848
    Download Restriction: no
    File URL: https://www.sciedupress.com/journal/index.php/afr/article/view/4786
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    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," 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.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Maillet, Bertrand & Tokpavi, Sessi & Vaucher, Benoit, 2015. "Global minimum variance portfolio optimisation under some model risk: A robust regression-based approach," European Journal of Operational Research, Elsevier, vol. 244(1), pages 289-299.
    2. Füss, Roland & Miebs, Felix & Trübenbach, Fabian, 2014. "A jackknife-type estimator for portfolio revision," Journal of Banking & Finance, Elsevier, vol. 43(C), pages 14-28.
    3. Víctor Adame-García & Fernando Fernández-Rodríguez & Simón Sosvilla-Rivero, 2017. "“Resolution of optimization problems and construction of efficient portfolios: An application to the Euro Stoxx 50 index"," IREA Working Papers 201702, University of Barcelona, Research Institute of Applied Economics, revised Feb 2017.
    4. Bollerslev, Tim & Patton, Andrew J. & Quaedvlieg, Rogier, 2018. "Modeling and forecasting (un)reliable realized covariances for more reliable financial decisions," Journal of Econometrics, Elsevier, vol. 207(1), pages 71-91.
    5. Erindi Allaj, 2020. "The Black–Litterman model and views from a reverse optimization procedure: an out-of-sample performance evaluation," Computational Management Science, Springer, vol. 17(3), pages 465-492, October.
    6. Yan, Cheng & Zhang, Huazhu, 2017. "Mean-variance versus naïve diversification: The role of mispricing," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 48(C), pages 61-81.
    7. Hsu, Po-Hsuan & Han, Qiheng & Wu, Wensheng & Cao, Zhiguang, 2018. "Asset allocation strategies, data snooping, and the 1 / N rule," Journal of Banking & Finance, Elsevier, vol. 97(C), pages 257-269.
    8. Kourtis, Apostolos & Dotsis, George & Markellos, Raphael N., 2012. "Parameter uncertainty in portfolio selection: Shrinking the inverse covariance matrix," Journal of Banking & Finance, Elsevier, vol. 36(9), pages 2522-2531.
    9. Behr, Patrick & Guettler, Andre & Miebs, Felix, 2013. "On portfolio optimization: Imposing the right constraints," Journal of Banking & Finance, Elsevier, vol. 37(4), pages 1232-1242.
    10. Cheng Yan & Ji Yan, 2021. "Optimal and naive diversification in an emerging market: Evidence from China's A‐shares market," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(3), pages 3740-3758, July.
    11. Johannes Bock, 2018. "An updated review of (sub-)optimal diversification models," Papers 1811.08255, arXiv.org.
    12. Branger, Nicole & Lučivjanská, Katarína & Weissensteiner, Alex, 2019. "Optimal granularity for portfolio choice," Journal of Empirical Finance, Elsevier, vol. 50(C), pages 125-146.
    13. Allen, D. & Lizieri, C. & Satchell, S., 2012. "Mean-Variance versus 1/N: What if we can forecast? (Updated 22nd December 2013)," Cambridge Working Papers in Economics 1244, Faculty of Economics, University of Cambridge.
    14. Miralles-Marcelo, José Luis & Miralles-Quirós, María del Mar & Miralles-Quirós, José Luis, 2015. "Improving international diversification benefits for US investors," The North American Journal of Economics and Finance, Elsevier, vol. 32(C), pages 64-76.
    15. Fletcher, Jonathan, 2011. "Do optimal diversification strategies outperform the 1/N strategy in U.K. stock returns?," International Review of Financial Analysis, Elsevier, vol. 20(5), pages 375-385.
    16. Behr, Patrick & Guettler, Andre & Truebenbach, Fabian, 2012. "Using industry momentum to improve portfolio performance," Journal of Banking & Finance, Elsevier, vol. 36(5), pages 1414-1423.
    17. Stadtmüller, Immo & Auer, Benjamin R. & Schuhmacher, Frank, 2022. "On the benefits of active stock selection strategies for diversified investors," The Quarterly Review of Economics and Finance, Elsevier, vol. 85(C), pages 342-354.
    18. Schanbacher Peter, 2015. "Averaging Across Asset Allocation Models," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 235(1), pages 61-81, February.
    19. Pflug, Georg Ch. & Pichler, Alois & Wozabal, David, 2012. "The 1/N investment strategy is optimal under high model ambiguity," Journal of Banking & Finance, Elsevier, vol. 36(2), pages 410-417.
    20. Víctor M. Adame-García & Fernando Fernández-Rodríguez & Simón Sosvilla-Rivero, "undated". "Portfolios in the Ibex 35 index: Alternative methods to the traditional framework, a comparative with the naive diversification in a pre- and post- crisis context," Documentos de Trabajo del ICAE 2015-07, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico, revised Jun 2015.

    More about this item

    JEL classification:

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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:jfr:afr111:v:3:y:2014:i:2:p:145. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sciedu Press (email available below). General contact details of provider: https://edirc.repec.org/data/cepflch.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.