Select the Optimal Portfolio by Analyzing and Comparing the Better Performance of Markowitz Model and Index Model under 5 Different Constraints

Yating Wang

doi:10.54254/2754-1169/13/20230753

Research Article

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Published on 13 September 2023

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Select the Optimal Portfolio by Analyzing and Comparing the Better Performance of Markowitz Model and Index Model under 5 Different Constraints

Yating Wang ¹

¹ The University of Kansas

* Author to whom correspondence should be addressed.

https://doi.org/10.54254/2754-1169/13/20230753

Abstract

In the research of investment management and investment portfolio, how to choose the best investment portfolio and avoid risks is a topic worthy of attention and research for the field development and investors. This study is based on the most recent 20-year historical daily total return data for 10 stocks belonging to 3 different industries to estimate all appropriate optimization inputs for the full Markowitz model as well as the index model and use these optimization inputs for both models’ areas that allow the portfolio will be required to deal with the additional constraints of five different situations. Through a complete analysis and comparison, it turns out that the Markowitz model is more suitable for investors to obtain the optimal portfolio, and it performs better under these constraints. In addition, the results mainly analyze and compare the performance of Markowitz model and Index model in help investors to select the best portfolio by calculating the minimum variance, maximum Sharpe, and standard deviation respectively. In this study, the Markowitz model outperforms the Index model portfolio with lower risk and volatility and higher expected returns. An efficient frontier is produced by Markowitz portfolio analysis, where each portfolio represents the highest return portfolio for a specific degree of risk.

Keywords

markowitz model, index model, outperforms

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Cite this article

Wang,Y. (2023). Select the Optimal Portfolio by Analyzing and Comparing the Better Performance of Markowitz Model and Index Model under 5 Different Constraints. Advances in Economics, Management and Political Sciences,13,364-376.

Data availability

The datasets used and/or analyzed during the current study will be available from the authors upon reasonable request.

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About volume

Volume title: Proceedings of the 2nd International Conference on Business and Policy Studies

Conference website: https://2023.confbps.org/

ISBN：978-1-915371-69-0(Print) / 978-1-915371-70-6(Online)

Conference date: 26 February 2023

Editor：Javier Cifuentes-Faura, Canh Thien Dang

Series: Advances in Economics, Management and Political Sciences

Volume number: Vol.13

ISSN：2754-1169(Print) / 2754-1177(Online)

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