Stock Selection Using Skewness to Construct a Portfolio and the Effects of Variables on Portfolio Return

Abstract

This study aims to investigate the effects of stock selection while constructing a portfolio using Skewness as well as the factors affecting portfolio return. This study was carried out in three stages: stock selection based on skewness, asset allocation based on Quadratic Programming, and portfolio return calculation based on market return and external factors. To assess and select portfolios, this study employs a novel methodology that combines key financial and non-financial characteristics with a skewness model. The research’s findings are as follows. First, skewness could be used to select the stocks that are added to a portfolio. Second, the market capitalization weighted portfolio generated the best return compared to the other two portfolios. Third, market return and the pandemic era have a significant impact on portfolio returns that are equally weighted, market capitalization weighted, and Markowitz weighted. Fourth, investors do not require fund management expertise to manage investor funds.