Selection Among Two Competing Objectives for an Optimal Portfolio with Respect to the Investor's Attitude

Abstract

<p>A portfolio is a bundle of securities in which investment is done in order to earn maximum returns. Variation in returns is inevitable and this variation around the expected return is called the risk. The return and risk move together due to which the maximum returns are invariably associated with the maximum risk. Hence finding the proportion of money to be invested in individual securities in such a way that the return is maximized may be a good idea for the investors who are willing to take risk. But for the investors who have an aversion towards risk, the objective of maximizing the return may not be a good idea. This study moves with the question of identifying the most suitable objectives among the two alternatives: Risk minimization and Return maximization. In general, Portfolio management is done by,</p> <ul> <li>Maximizing the return for a given level of risk or</li> <li>Minimising the risk for a given level of return.</li> </ul> <p>The effect of these two objectives on the return and risk of the portfolio are studied with randomly selected securities in this study. The study attempts to suggest appropriate objectives for the risk taking and risk averting investors.</p>