Markowitz and Index Model Comparison Using Different Stocks

Xiang Li () and Jinyi Wang
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Xiang Li: University of Kentucky, Gatton College of Business and Economics
Jinyi Wang: University of California, Department of Social Science

A chapter in Proceedings of the 2022 International Conference on Economics, Smart Finance and Contemporary Trade (ESFCT 2022), 2022, pp 808-817 from Springer

Abstract: Abstract Markowitz Model and Index Model are two dominant portfolio optimization models financiers use in recent years. By using these two models, different possible optimized investment strategies can be created for people to distribute their properties wisely. And in this paper, to run the Markowitz Model and Index Model independently, an investment portfolio with 20 years of daily data of total returns of the S&P 500 Index and ten stocks will be employed. After setting five different constraints which correspond to circumstances in real life more, consequential data of the Markowitz Model and Single Index Model will be produced which include the Minimum Variance point, Maximum Sharpe point, Efficient Frontier, Inefficient Frontier, and Minimum Variance Frontier. These data are indispensable elements to compare Markowitz Model and Single Index Model. Comparing these two models is important because it can be ensured that the results from the two models do not differ a lot and these two models are two believable and useful tools to build the optimized investment strategies for people. And this paper also shows that these two models are useful and meaningful under different circumstances after a long time.

Keywords: Markowitz Model; Index Model; Minimum Variance; Maximum Sharpe; Efficient Frontier; Inefficient Frontier (search for similar items in EconPapers)
Date: 2022
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DOI: 10.2991/978-94-6463-052-7_92

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