A Comparison Of Mean-Variance And Mean-Semivariance Optimisation On The JSE

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Jiten Vasant
Laurent Irgolic
Ryan Kruger
Kanshukan Rajaratnam

Keywords

Semivariance, Johannesburg Stock Exchange, Optimisation, Mean-variance

Abstract

This study investigates the effectiveness of semivariance versus mean-variance optimisation on a risk-adjusted basis on the JSE. We compare semivariance and mean-variance optimisation prior to, during and after the recent financial crisis period. Additionally, we investigate the inclusion of a fixed-income asset in the optimal portfolio. The results suggest that semivariance optimisation on the JSE in a pure equity case produces lower absolute returns, yet superior risk-adjusted returns. Further investigation suggests that semivariance metrics are effective within a certain range of portfolio sizes and diminishes in benefit once portfolios become larger. A fixed income asset scenario tested under the hypothesis of semivariance optimisation favoured greater bond weightings in optimal portfolios.

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