Research on Portfolio Construction for the Chinese Stock Market Based on Monte Carlo Simulatio

Abstract

This paper investigated on the construction of the investment portfolio specifically in the detail of the Chinese stock market. The definition of portfolio was cited from Markowitz, then Monte Carlo simulation was used on top of it. By doing tests and experiments, results were obtained to prove the correctness of the portfolio selection, and the strategical moves of using Stock Index Futures to hedge the risk. Our empirical results indicated that Kwei Chow Moutai accounted for the largest proportion in the portfolio. It was concluded that using SPIF index to hedge the risk was the best investment strategy for the portfolio. The results in this paper shed lights for certain investors in the financial markets, set the foundation of a newer market’s merit, and proved the necessity to invest it.