Stock variation in optimum portfolios with mean-variance and mean-semivariance approach: A comparative analysis for emerging markets

The main objective of this thesis is to determine the optimal number of equities required to be included within portfolio for each single country by applying both mean-variance and mean-semivariance approaches and then compare them. All the analysis has been conducted in 8 emerging countries which are Brazil, China, India, Mexico, South Africa, Turkey, South Korea, and Pakistan. Data from Bloomberg spanning Sep'16 to Sep'21 was used. Emerging countries are chosen within the scope of this thesis due to their nature of skewed and non-normal equity return distributions, which make downside risk analysis more appropriate. Findings show that mean-semivariance optimization generally results in portfolios with fewer equities, except for Brazil. The recommended number of equities typically ranges from 12 to 18. The results reveal that optimal portfolios of the mean-semivariance model contain significantly fewer equities compared to those determined with the mean-variance model. This suggests reduced turnover and transaction costs and thus increased net returns.