Interrelationship of Valuation and Portfolio Selection of Stocks

Valuation and portfolio choice of stocks are interrelated via optimal risk management. Investors use valuation models in determining and evaluating stock values. Portfolio theory enables an optimal risk combination of the stock selected through valuation process. The portfolio optimisation problem is to determine what proportion of the portfolio should be allocated to each asset, given the investor’s objective on expected return by minimising the level of risk in the portfolio. The assumption in this analysis is that investors are risk averse. \ud \ud This paper illustrates the process using Australian electronic commerce stocks and other assets to highlight their risk-return characteristics and to review the behaviour of e-commerce stocks in a portfolio context. \ud \ud Appropriate conclusions are drawn. The results show that the Australian E-Commerce Multifactor Model (AEMM) tested is applicable