Determining the Risk Minimizing Portfolio at the Nairobi Stock Exchange
Abstract
This study evaluates the risk reduction benefits of portfolio diversification at the Nairobi Stock
Exchange. Risk is estimated using variance and standard deviation.
The study uses the mean variance analysis model, and the period of study is 1996 to 2000.
The analysis indicates that there is significant risk reduction at the Nairobi Stock Exchange as a
portfolio grows in size. This continues until a portfolio size of about 13 securities is held, beyond
this size the risk reduction becomes insignificant. At this optimal portfolio size the proportion of
total risk eliminated is 34%. This shows that the current size of the NSE does not fully diversify
specific risk. This is an indicator that deliberate efforts need to be made to widen the market in
order to enhance further diversification.
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Citation
Masters Degree in Business AdministrationPublisher
University of Nairobi, Faculty of commerce