Dynamic Selection of Optimal Sub-portfolio - Application in the Regional Stock Exchange of Securities in West Africa (BRVM)

  •  Seydina I. Dione    
  •  Salimata G. Diagne    
  •  Dethie Dione    
  •  Youssou Gningue    


In this paper, we consider a generalization of the mean-variance model of Markowitz, including a new limiting constraint on marginal returns through the PER(price earnings ratio), that we apply to an optimal portfolio selection in the Regional Stock Exchange of Securities in West africa (BRVM). We study the PER restriction impact through a dynamic selection of optimal sub-portfolios from an initial portfolio. We trace out dynamically the efficient frontiers of the sub-portfolios for different integer values of the PER. The main objective is to provide, for every level of performance (in term of returns) and for a fixed PER, the selection of optimal sub-portfolios that should lead, for a minimal risk, to the  same performance as the original portfolio. We show that based on the PER, we can know for each level of performance, the securities   to turn down to be able to define the best selection that converge to the optimal portfolio. Moreover, this work is a contribution to the development   efforts of our financial systems and our West African stock market environment. The plots of the efficient frontiers of the sub-portfolios were carried out   throughout data collected from the BRVM (Regional Stock Exchange Securities) in the period from October 2014 to February 2015.

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