Portfolio Optimization for Stock Market in Ghana Using Value-at-Risk (VaR)

The study was conducted to identify the performing stocks as well as examine the portfolio optimization with associated Value at Risk (VaR) for some selected stocks on the Ghana Stock Exchange (GSE). A historical data of 15 companies categorized into Financial Stock Index (FSI) and Composite Index (CI) from 2000 to 2017 were obtained from Bank of Ghana (BoG), Ghana Stock Exchange (GSE) and Gold Coast Security (GCS). From the study, ETI, HFC, SIC, TOTAL, FML, UNIL and GOIL stocks were identified to be over performing on the Ghana Stock Exchange. Also, CAL, EBG, ALW, AYRTN, GOIL were identified as aggressive stocks; GCB, SCB, TOTAL, GGBL as defensive stocks; and ETI, HFC, SIC, FML, PZC, UNIL as inversely moving towards the market return. The optimal portfolio asset allocation, for the minimum VaR portfolio showed a marginal diversification in other stocks in the cases of FSI, but greater portion was invested in HFC. However, in the case of CI displayed no indication of diversification in the portfolio as 67.30% of investors invested in AYRTN and only 32.70% in the remaining securities. The study then proceeded to find the optimal portfolio with risk-free asset for both indexes. It was recommended that further study should extend the approaches used by considering Conditional Value at Risk (CVaR) as the VaR measure does not give any information about potential losses in the worst cases.