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

Martin Sirucek () and Lukáš Křen
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Lukáš Křen: Department of Finance, Faculty for Business and Economics, Mendel University in Brno, Zemědělská 1, 613 00 Brno, Czech Republic

Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, 2015, vol. 63, issue 4, 1375-1386

Abstract: 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 coefficients, 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 predefined 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 profiles. The results of this work will provide general recommendations on the optimal approach to choose securities for an investor's portfolio.

Keywords: Markowitz Portfolio Theory; Modern Portfolio Theory; Capital Asset Pricing Model; CAPM; diversification; stock portfolio (search for similar items in EconPapers)
Date: 2015
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Working Paper: Application of Markowitz Portfolio Theory by Building Optimal Portfolio on the US Stock Market (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:mup:actaun:actaun_2015063041375

DOI: 10.11118/actaun201563041375

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