Application of Markowitz Portfolio Theory by Building Optimal Portfolio on the US Stock Market

Širůček, Martin and Křen, Lukáš (2015): Application of Markowitz Portfolio Theory by Building Optimal Portfolio on the US Stock Market. Published in: Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis , Vol. 63, No. 4 (3 September 2015): pp. 1375-1386.

Abstract

ŠIRŮČEK MARTIN, KŘEN LUKÁŠ. 2015. Application of Markowitz Portfolio Theory by Building Optimal Portfolio on the US Stock Market. Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, 63(4): 1375–1386.

This paper is focused on building investment portfolios by using the Markowitz Portfolio Theory (MPT). Derivation based on the Capital Asset Pricing Model (CAPM) is used to calculate the weights of individual securities in portfolios. The calculated portfolios include a portfolio copying the benchmark made using the CAPM model, portfolio with low and high beta coeffi cients, and a random portfolio. Only stocks were selected for the examined sample from all the asset classes. Stocks in each portfolio are put together according to predefi ned criteria. All stocks were selected from Dow Jones Industrial Average (DJIA) index which serves as a benchmark, too. Portfolios were compared based on their risk and return profi les. The results of this work will provide general recommendations on the optimal approach to choose securities for an investor’s portfolio.

• Item Type: MPRA Paper
• Language: English
• Keywords: Markowitz Portfolio Theory, Modern Portfolio Theory, Capital Asset Pricing Model, CAPM, diversifi cation, stock portfolio
• Subjects: G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice ; Investment Decisions; G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets

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