IIARD International Institute of Academic Research and Development

IIARD International Journal of Economics and Business Management (IJEBM )

E-ISSN 2489-0065
P-ISSN 2695-186X
VOL. 4 NO. 7 2018

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Markowitz and Naive Diversification Strategies: The Nigerian Experience

Monday A. Gbanador

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Abstract

This study investigates the performance of Markowitz and Naive diversification strategies in the Nigeria stock market. Thus, it examines the portfolio construction strategy that will generate superior performance regarding risk reduction and return maximization. These strategies were used to select 28 securities from the 159 equity stocks listed on the Nigerian stock exchange for 6 years using monthly data from January 2011 to December 2016 which is equivalent to 72 periods. Using the Welch’s t-test to test the mean performance of Markowitz and Naïve diversification strategy, the null hypothesis was accepted. Thus, the study found out that there is no significant difference between the mean returns of Markowitz and Naïve diversification strategy using stocks quoted on the Nigerian stock market. The implication of this result is that the two techniques are capable of minimizing risk thereby maximizing expected return. However, the study recommended the adoption of these strategies since they are applicable to the Nigeria stock market

Markowitz diversification; Naive diversification; Risk; Return; Optimal portfolio

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