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RESEARCH PRODUCT

Finding the best portfolio for the long term investor

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Masteroppgave i økonomi og administrasjon - Universitetet i Agder 2010 This paper examines different portfolios of U.S financial assets, trying to find the best portfolio for the long-term investor. I compare bond portfolios with stock portfolios based on statistics as book-to-market ratio, market capitalization, earnings yield, dividend yield and cash flow yield, stock portfolios based on industry and the market portfolio. The ranking devices I am using are Sharpe ratio and Sortino ratio. Dependent on the assumption on whether the returns are independent and identically distributed or not, the probability distribution of the return are simulated by using two different methods, the standard bootstrap method and the block-bootstrap method. Since I am calculating both the Sharpe ratio and the Sortino ratio with both methods, I have four different outcomes of my analysis. The results depend on my assumptions, when I calculate Sharpe ratios by using the bootstrap method, bonds tend to outperform stocks. In the three other scenarios however, my analysis shows that stocks tend to outperform bonds, and stock portfolios with high book-to-market ratios, high dividend yields, high earnings yield or high cash flow yield tend to perform better than other portfolios.