The effect of liquidity and diversification on choosing the optimal investment portfolio

Subject Areas : Renewable Energy

ABBAS  KHADEMPOUR ARANI ¹ (PhD student, Department of Financial Management, Central Tehran Branch, Islamic Azad University, Tehran, Iran)
Mehdi  Madani Zaj ² (Assistant Professor, Department of Financial Management, Electronics Unit, Islamic Azad University, Tehran, Iran)
AmirReza  Keyqobadi ³ (Assistant Professor, Department of Accounting, Central Tehran Branch, Islamic Azad University, Tehran, Iran)
QolamReza  Zomorodian ⁴ (Assistant Professor, Department of Financial Management, Central Tehran Branch, Islamic Azad University, Tehran, Iran)

Received: 2022-11-14 Accepted : 2023-03-14 Published : 2023-06-15

Keywords: Diversification, Liquidity Risk, Multivariate GARCH, Optimal portfolio,

Abstract :

Examining the results in the case where there is a liquidity cost and a diversification index in the model, shows that the industries that have more stability in their stock prices over time have more weight in the optimal portfolio. In addition, performing statistical analysis with total index return data in this case does not show the existence of a significant relationship between the average portfolio return data and the average return of the total index .By removing the cost of liquidity from the model, the examination of the output data shows that the average weight share of the petroleum products industry and the metal ore industry increases compared to the previous state, which means that these two industries are less liquid; Meanwhile, the average return and value at risk of the portfolio increases in this case. Performing statistical analysis with total index return data in this case shows a significant relationship between the average return of the portfolio and the average return of the total index. In the case of removing the diversification limit from the model, the results of the research in this case show that the average weight of the selected industries in the optimal portfolio changes, but this change is not very noticeable, and the result is that this limitation can be ignored in the model; In addition, performing statistical analysis with total index return data shows a significant relationship between the average portfolio data in this case and the average index return.