Portfolio Optimization in Practice: A Comparative Analysis of the Markowitz and Index Models

Fukuei Nahari ()
Additional contact information
Fukuei Nahari: New York University

A chapter in Proceedings of the 2025 International Conference on Financial Risk and Investment Management (ICFRIM 2025), 2025, pp 360-367 from Springer

Abstract: Abstract Portfolio optimization is the foundation of modern investing theory, enabling investors to balance risk and return in the dynamic stock market environment. This paper examines two seminal models of portfolio optimization—the Markowitz model and the Index model—exploring their theoretical foundations, methodologies, and practical applications. The Markowitz model, with its rigorous mean-variance optimization framework, emphasizes diversification by accounting for asset correlations, offering unmatched precision in portfolio construction. Conversely, the Index model simplifies optimization by linking asset returns to a single market index, reducing computational demands and focusing on systematic risks. Using Goldman Sachs’ $621 billion stock portfolio as a case study, the paper evaluates the applicability and performance of these models in managing large-scale, diversified investments. Findings highlight the Index model’s practicality and alignment with Goldman Sachs’ strategic focus on market indices and technology sector investments, underscoring its suitability for large institutional portfolios. This comparative analysis illuminates how theoretical frameworks can be effectively integrated into real-world financial strategies to optimize performance and manage risk in a complex, ever-changing market landscape.

Keywords: portfolio optimization; Markowitz model; Index model; financial strategy (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:advbcp:978-94-6463-748-9_40

Ordering information: This item can be ordered from
http://www.springer.com/9789464637489

DOI: 10.2991/978-94-6463-748-9_40

Access Statistics for this chapter

More chapters in Advances in Economics, Business and Management Research from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().