Building an Optimal Portfolio: Using the CAPM and CAT-OFF Models: A Comparative Analytical Study of the Iraq Stock Exchange

Abstract

   This study aims to construct an optimal investment portfolio in the Iraq Stock Exchange by applying two key financial models: the Capital Asset Pricing Model (CAPM) and the Cut-off Rate Model. The analysis covered data from 59 listed companies across seven main economic sectors over the period 2017–2023 .

The methodology involved calculating the annual returns for each company and comparing them to the risk-free rate (Rf), in addition to estimating the beta coefficient and variance to assess systematic risk. The Treynor Ratio and Cut-off Rate were utilized to evaluate the investment efficiency of the selected companies.

The findings revealed that companies in the agriculture, telecommunications, and industrial sectors achieved the highest return-to-risk ratios, while weaker performance was observed in some banking and insurance companies. The comparison between the models indicated that the Cut-off Rate Model provided more accurate guidance in selecting high-performing companies by jointly considering return and risk. On the other hand, CAPM served as a valuable reference for evaluating the relationship between expected return and systematic risk.

The study concludes that the integration of both models contributes to building a more efficient investment portfolio and offers reliable quantitative tools for investment decision-making in emerging markets such as Iraq.