THE OPTIMAL PORTFOLIO DETERMINATION FOR STOCKS IN THE FTSE 100 INDEX UNDER GLOBAL FINANCIAL TURMOIL

Abstract

Abstract. W. Sharpe index model presupposes the analysis of stocks with the excess return
comparing to those that are included the index, in our case FTSE-100. The determination of
relevant coefficients for each security, the value of dispersion for each security, the expected return
ratio and the dispersion value for the market index has both academic and practical significance.
In Sharpe index model the correlation that exists between fluctuations of separate stocks is
used. The required input data is assumed to be approximately determined by a single basic factor
and relations that correlate this factor with changes in the stock prices – the proposed and
developed cutoff rate.
The additional verification of results obtained and comprehensive analysis of expected return
on stocks under consideration in marker index presupposes the application of mathematical mechanisms in order to track excess return that appeared as a result of direct influence on the
stock market of numerous internal and external shocks. In case of intensification of financial and
economic turmoil, that slows the paces of key macroeconomic indicators and provokes the downfall
of gross output in the different industrial branches a wide field of opportunities for speculations
and arbitrage by portfolio investors appear. A special attention should be paid to the
dynamics of key market indices, that may show different trends in comparison with main indicators
and separate shares in the index. The determination of stocks with volatility and level of
return comparable with the overall market volatility which is not connected with the increase of
output and economic stabilization at the enterprise proves to be a burning issue. The mechanism
of additional filter calculation – the cutoff point of overestimated stocks modifies the existing approaches
to optimal portfolio determination both within the ranks of W. Sharpe or H. Markowiz
model.
Key words: stock market index, dispersion, stocks covariance, optimal portfolio.