APPLICATION OF THE MARKOWITZ MODEL AND INDEXMODEL IN REAL STOCK MARKETS

Authors

  • Lexi Yao

DOI:

https://doi.org/10.61173/ypyp5r05

Keywords:

Markowitz Model, Index Model, portfolio, additional constraint, minimal variance frontier

Abstract

The complete Markowitz Model and the Index Model have a wide range of applications for portfolios in the stock
market, and in this paper, we want to apply these two models in a realistic stock market. In this paper, ten stocks
belonging to different industries and the S&P 500 equity index are selected as a portfolio, and the 1-month Fed Funds
rate is chosen as the risk-free rate. Through proper data aggregation and processing, we calculate the weights of
each stock in the portfolio in the case of minimal portfolio variance and maximal Sharpe ratio under five additional
constraints using the complete Markowitz Model and the Index Model, respectively. Finally, we can calculate the
minimal variance frontier, efficient frontier, inefficient frontier, and capital allocation line under each constraint, plotted
using the Solver Table in Excel

References

[1] Changjie Chen. “Using Index model and Markowitz Model to analyze the Results of Retail Industries Before and After the Covid-19 Virus Outbroke”. Proceedings of 3rd International Conference on Global Economy and Business Management (GEBM 2021). Ed.., 2021, 240-249.

[2] S. I. U. Chasanah, et al. “Comparison of The Markowitz and Single Index Model Based on M-V Criterion in Optimal Portfolio Formation.” International Journal of Engineering and Management Research (IJEMR) 7.4(2017).

[3] Giri Laxmi Kanta.”Optimum portfolio construction using Markowitz model.” Splint International Journal Of Professionals 3.12(2016).

[4] Biswajit Rout,, and Jaya Krushna Panda. “Optimal Portfolio Investment Strategy: Portfolio Selection in Indian Stock Market Using the Markowitz Model.” Siddhant- A Journal of Decision Making 15.1(2015). doi:10.5958/2231-0657.2015.00009.9.

[5] Ortiz Roberto, Contreras Mauricio, and Mellado Cristhian.”Improving the volatility of the optimal weights of the Markowitz model.” Economic Research-Ekonomska Istraživanja 35.1(2022). doi:10.1080/1331677X.2021.1981963.

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Published

2023-06-01

Issue

Vol. 1 No. 1 (2023): Volume 1, Issue 1

Section

Articles

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Copyright (c) 2023 by the authors.

Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.