Sensitivity of the Efficient Frontier to Changes in the Estimated Parameters: the Expected Return Vector and Covariance Matrix (Applied study on the Damascus Stock Exchange

الملخص

The aim of this research is to study the sensitivity of the efficient frontier to changes in the estimated parameters. By applying to a sample of the shares of companies listed on the Damascus Securities Exchange during the period (20/2/2019-8/8/2021), To achieve this goal The formation of an efficient frontier was initiated by the use of traditional methods of estimation Represented by the adoption of the average as a measure of expected returns. And then the formation of two effective efficient frontier based on the assumptions of the rise and fall of the market, And by applying the investment ratios in stocks linked to the portfolios of the first efficient frontier on the actual parameters achieved in the event of the rise and fall of the market. Two real efficient frontiers are obtained based on the average dependence as a measure of the expected returns, By comparing the characteristics of these two efficient frontiers represented in (components of efficient portfolios, returns and risks of efficient investment portfolios, graphic representation of the efficient frontier), with the characteristics of their actual counterparts based on the adoption of the highest and lowest returns as a measure of expected returns. The amount of gains/losses that could have been realized/avoided if the estimation process was accurate, and thus the sensitivity of the efficient threshold to a change in the estimated parameters. The research reached a set of results, the most prominent of which was the change in the characteristics of the efficient frontier with the changes in the estimated parameters. As the components of efficient portfolios change with the change in the expected return ray and the covariance matrix in terms of stocks, their number and investment ratios in each of them. The high degree of portfolio diversification resulting from the use of the highest returns as a measure of the expected returns and the distribution of capital among the less risky stocks, excluding their high risk counterparts. In addition to noting the low degree of diversification of the resulting portfolios and the concentration of capital among the stocks associated with the least losses, while using the lowest returns as a measure of the expected returns.