NEPSE Sub- Indices Performance Evaluation: A Risk-Return Analysis with Sharpe, Treynor, Jensen and Modigliani Approaches

Abstract

Portfolio analysis offers a formal approach to decision making on how to make a proper investment decision at least in relation to the portfolio performance analysis in emerging markets. The primary goal of the research was to assess the performance of chosen sub- indices of the Nepal Stock Exchange in terms of Sharpe, Treynor, Jensen as well as the measures of the M 2 by Modigliani. The study employed explanatory descriptive research design using latest data of selected subindexes from NEPSE ALPHA. Also, verification was done crosschecking data from Share sansar. Performance assessment of years 2021 to 2025, using 91-day T-bill rate. Average annualized risk-free rate of 5.12% has been used as proxy. Additionally, the Sharpe ratio, Treynor ratio, Jensen's, and M-squared metrics were calculated using the daily closing price. The results showed the hotel index gained the highest annualized return of 17.44% and outperformed across multiple performance measures, with the highest Sharpe ratio of 0.384, Treynor ratio of 23.62%, and Jensen's alpha of 16.7%. At the same time, Mutual funds were less volatile, with a (σ = 0.207) and a favorable Coefficient of variation of 5.40 ensuring positive return. The most volatile with (σ = 0.412) with negative returns but the highest in (M 2 = 4.25) where market risk was adjusted was the Finance Index. On the same note, the development bank index depicts poor risk-return Coefficient of variance -33.34. The form of data above indicates that the Hotel Index has worked exceptionally well within the measurement period that the Trading offer and the Mutual Fund Index provide diversification to potential investors. While. Meanwhile, the weakening of the Finance and Development Banks makes them less desirable, because of the heavy risks and bad performance. Consequently, the investors can opt to take the diversification strategy so that the risk is reduced and returns can be maintained in the long run. This strategy will give investors a stronger investment strategy in order to improve their yields. Future researchers may apply additional tools, such as the Sortino ratio, stochastic modelling, and the value-at-risk model, to strengthen the performance.