The primary purpose of this thesis is to investigate the consequences of portfolio revision policy under the different stock market conditions in Korea. More specifically, the nonstationarity of systematic risk was tested, the efficient frontiers were derived, and the performances of portfolio were compared for the ordinary, bull, and bear markets.
A linear regression model with dummy variable was used as a test model and the Sharpe's linear model was also used to derive the efficient frontiers. Major results are as follows;
(1) Tests showed that the systematic risk in the Korean Stock Market was significantly nonstationary which was opposed to the ordinary assumptions; About 12.6 percent of the 63 stocks dominating the market showed nonstationary, which reflected the rapid change in the financial structure of firms in Korea during the last decade.
(2) The efficient frontier in bull market dominated that in ordinary market for any expected rate of returns.
The efficient frontier in bear market dominated that in ordinary market for the expected rate of return up to about 0.16 percent.
(3) The portfolio performances over the three markets were compared using the security market lines;
Using the Sharpe index, the performance in bull market was 13.4 percent higher than that in ordinary market. The performance in bear market was 2.8 percent higher than that in ordinary market.
The above results support that the portfolio revision policy according to the different market conditions are necessary and will be of great benefit to the investors in Korea.