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Static and Dynamic Portfolio Selection Approaches and the Application of Portfolio Strategies: Evidence from the Ghana Stock Exchange |
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PP: 1309-1323 |
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doi:10.18576/jsap/150509
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Author(s) |
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Isaac Quayson,
Chisara P. Ogbogbo,
Bright O. Osu,
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Abstract |
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| This study investigates portfolio selection under both static and dynamic approaches, with an application to the Ghana Stock Exchange. The static approach evaluates asset performance using historical wealth accumulation over the past 120 trading days, the Sharpe ratio, and the Gini performance ratio. In contrast, the dynamic approach emphasizes investor preferences and the asymptotic properties of wealth evolution, with ranking indicators including the Expected Power Utility, the Sharpe ratio based on forecasted wealth, and the Optimum Asset (OA)-Stable ratio. Assets preselected under these two approaches are subsequently subjected to portfolio strategies such as the Markov strategy—implemented through a transition matrix to compute wealth paths—the Sharpe ratio strategy, and the uniform strategy. Using historical data from the Ghana Stock Exchange from January, 2015 to October, 2016, the results show that the static and dynamic approaches do not necessarily select the same set of assets. Moreover, results reveal that the Markov strategy outperforms both the uniform and Sharpe ratio strategies in terms of wealth accumulation. These findings underscore the relevance of Markov chains in portfolio allocation, particularly in enhancing financial returns within illiquid markets such as Ghana.
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