IDEAS home Printed from https://ideas.repec.org/a/zag/zirebs/v20y2017iscip13-23.html

Towards the Estimation of an Efficient Benchmark Portfolio: The Case of Croatian Emerging Market

Author

Listed:
  • Denis Dolinar Davor Zorièiæ Antonija Kožul

    (University of Zagreb, Faculty of Economics & Business, Zagreb, Croatia University of Zagreb, Faculty of Economics & Business, Zagreb, Croatia McKinsey & Company - Global management consulting, Zagreb, Croatia)

Abstract

The fact that cap-weighted indices provide an inefficient risk-return trade-off is well known today. Various research approaches evolved suggesting alternative to cap-weighting in an effort to come up with a more efficient market index benchmark. In this paper we aim to use such an approach and focus on the Croatian capital market. We apply statistical shrinkage method suggested by Ledoit and Wolf (2004) to estimate the covariance matrix and follow the work of Amenc et al. (2011) to obtain estimates of expected returns that rely on risk-return trade-off. Empirical findings for the proposed portfolio optimization include out-of-sample and robustness testing. This way we compare the performance of the capital-weighted benchmark to the alternative and ensure that consistency is achieved in different volatility environments. Research findings do not seem to support relevant research results for the developed markets but rather complement earlier research (Zorièiæ et al., 2014). JEL Classification: G11, G12

Suggested Citation

  • Denis Dolinar Davor Zorièiæ Antonija Kožul, 2017. "Towards the Estimation of an Efficient Benchmark Portfolio: The Case of Croatian Emerging Market," Zagreb International Review of Economics and Business, Faculty of Economics and Business, University of Zagreb, vol. 20(SCI), pages 13-23, April.
    • Handle: RePEc:zag:zirebs:v:20:y:2017:i:sci:p:13-23
    as

    Download full text from publisher

    File URL: http://hrcak.srce.hr/index.php?show=clanak&id_clanak_jezik=265892
    Download Restriction: Abstract only available on-line
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Fama, Eugene F & French, Kenneth R, 1992. "The Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 47(2), pages 427-465, June.
    2. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Armin Habibovic & Davor Zoricic & Zrinka Lovretin Golubic, 2017. "Efficiency Of Crobex And Crobex10 Stock Market Indices," UTMS Journal of Economics, University of Tourism and Management, Skopje, Macedonia, vol. 8(3), pages 271-280.

    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. Radosław Kurach, 2013. "Does Beta Explain Global Equity Market Volatility – Some Empirical Evidence," Contemporary Economics, Vizja University, vol. 7(2), June.
    2. Shi, Yun & Cui, Xiangyu & Zhou, Xunyu, 2020. "Beta and Coskewness Pricing: Perspective from Probability Weighting," SocArXiv 5rqhv, Center for Open Science.
    3. Abugri, Benjamin A. & Dutta, Sandip, 2014. "Are we overestimating REIT idiosyncratic risk? Analysis of pricing effects and persistence," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 249-259.
    4. Shaikh, Salman, 2013. "Investment Decisions by Analysts: A Case Study of KSE," MPRA Paper 53802, University Library of Munich, Germany.
    5. Turan G. Bali & Robert F. Engle & Yi Tang, 2017. "Dynamic Conditional Beta Is Alive and Well in the Cross Section of Daily Stock Returns," Management Science, INFORMS, vol. 63(11), pages 3760-3779, November.
    6. Cakici, Nusret & Zaremba, Adam, 2022. "Salience theory and the cross-section of stock returns: International and further evidence," Journal of Financial Economics, Elsevier, vol. 146(2), pages 689-725.
    7. Michael E. Drew & Jon D. Stanford, 2003. "Retail Superannuation Management in Australia: Risk, Cost and Alpha," School of Economics and Finance Discussion Papers and Working Papers Series 126, School of Economics and Finance, Queensland University of Technology.
    8. repec:ers:journl:v:xxiv:y:2021:i:4:p:370-395 is not listed on IDEAS
    9. repec:dau:papers:123456789/2514 is not listed on IDEAS
    10. Klaus Schredelseker, 2012. "Finanzkrise — Mitschuld der Theorie?," Schmalenbach Journal of Business Research, Springer, vol. 64(8), pages 833-845, December.
    11. Pritpal Singh Bhullar & Pradeep K. Gupta, 2016. "Expected and realized stock returns: Evidence from India," Asian Journal of Empirical Research, Asian Economic and Social Society, vol. 6(11), pages 270-278, November.
    12. Broadstock, David C. & Fouquet, Roger & Kim, Jeong Won, 2025. "Carbon pricing and stock performance: Are carbon prices already more influential than energy prices?," Energy Policy, Elsevier, vol. 206(C).
    13. Aynur Pala, 2014. "The Effect of Valuation Ratios, Gold Price, and Petroleum Price on Equity Returns: A Comparison of Static Panel and Quantile Regressions," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 4(1), pages 80-89, January.
    14. Tai, Chu-Sheng, 2003. "Are Fama-French and momentum factors really priced?," Journal of Multinational Financial Management, Elsevier, vol. 13(4-5), pages 359-384, December.
    15. Mohammad K. Elshqirat & Mohammad M. Sharifzadeh, 2018. "Testing a Multi-factor Capital Asset Pricing Model in the Jordanian Stock Market," International Business Research, Canadian Center of Science and Education, vol. 11(9), pages 13-22, September.
    16. Linnenluecke, Martina K. & Chen, Xiaoyan & Ling, Xin & Smith, Tom & Zhu, Yushu, 2017. "Research in finance: A review of influential publications and a research agenda," Pacific-Basin Finance Journal, Elsevier, vol. 43(C), pages 188-199.
    17. Cong Wang, 2024. "Stock return prediction with multiple measures using neural network models," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 10(1), pages 1-34, December.
    18. Arati Kale & Devendra Kale & Sriram Villupuram, 2024. "Decomposition of risk for small size and low book-to-market stocks," Journal of Asset Management, Palgrave Macmillan, vol. 25(1), pages 96-112, February.
    19. Fong, Wai Mun, 1997. "Robust beta estimation: Some empirical evidence," Review of Financial Economics, Elsevier, vol. 6(2), pages 167-186.
    20. Guobin Fan & Eric Girardin & Wong K. Wong & Yong Zeng, 2015. "The Risk of Individual Stocks’ Tail Dependence with the Market and Its Effect on Stock Returns," Discrete Dynamics in Nature and Society, Hindawi, vol. 2015, pages 1-17, November.
    21. Jorge H. del Castillo-Spíndola, 2006. "A Non-Parametric Test of the Conditional CAPM for the Mexican Economy," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 21(2), pages 275-297.
    22. Chen, Ermo & Wu, Lan, 2025. "mRORAC: A stable and market adapted risk-adjusted performance measure for capital allocation," International Review of Financial Analysis, Elsevier, vol. 107(C).

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

    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:zag:zirebs:v:20:y:2017:i:sci:p:13-23. 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: Jurica Šimurina The email address of this maintainer does not seem to be valid anymore. Please ask Jurica Šimurina to update the entry or send us the correct address (email available below). General contact details of provider: https://edirc.repec.org/data/fefzghr.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.