Application Of Markowitz and Index Models to Real Markets

Abstract

After Markowitz put forward the portfolio theory in the 1950s, the modern investment theory was developed, and more related theoretical models were created based on it. To find the optimal portfolio in the market, this paper randomly selects 7 stock types, uses three different constraint methods to show the investment characteristics of different group of investors, and uses Index model and Markowitz model to find efficient frontier and the proportion of asset allocation under the condition of maximum Sharpe ratio and minimum variance. The results show that to achieve the maximum Sharpe ratio and find the best combination, it is necessary to purchase AAPL primarily. Secondly, it chooses to purchase assets with less correlation and relatively large return rate, such as MSFT and WMT. The results in this paper shed lights for investor in selecting potential assets and may provide helpful insight for future investments.