PORTFOLIO ANALYSIS WITH SECOND ORDER STOCHASTIC DOMINANCE BY THE PERSPECTIVE OF CAPITAL STRUCTURE: AN IMPLEMENTATION ON BIST-100 INDEX

Year 2017, Volume: 4 Issue: 3, 245 - 255, 30.09.2017

Oktay Tas , Ali Sezin Ozdemir Kaya Tokmakcioglu

Abstract

Purpose- The aim of this paper is to observe whether generating a portfolio having
return more than index by investigating the return performance of index’s
stocks and capital structure of firms in index in a certain period. The second
aim of this paper is to provide portfolio diversification by using the method
of this study. In this paper, firms and stocks on BIST-100 index are referenced
for empirical study.

Method- Stocks are chosen from BIST-100 index with regard to certain capital
structure of firms in stocks, and second orderly stochastic dominance test is
implemented on these stocks. Dominant stocks are defined to generate a
portfolio after stochastic test and this portfolio’s return performance is
compared to the index’-s return.

Findings- The portfolio, whose stocks are filtered by a certain capital structure
and then chosen by second orderly stochastic dominance test, has return
performance better than index’s return.

Conclusion- This paper is indicating that second orderly stochastic
dominance method and capital structure is an important investigation to
generate a portfolio having higher returns more than index’s.

Keywords

Capital structure, second order stochastic dominance, portfolio analysis, D/E ratio, returns over index

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