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Portfolio selection models: comparative analysis and applications to the Brazilian stock market

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  • Farias, Christiano Alves
  • Vieira, Wilson da Cruz
  • Santos, Maurinho Luiz dos

Abstract

This paper presents a comparison of three portfolio selection models, Mean-Variance (MV), Mean Absolute Deviation (MAD), and Minimax, as applied to the Brazilian Stock Market (BOVESPA). For this comparison, we used BOVESPA data from three different 12 month time periods: 1999 to 2000, 2001, and 2002 to 2003. Each model generated three optimal portfolios for each period, with performance determined by monthly returns over the period. In general, the accumulated returns from the Minimax modeled portfolios were superior to the BOVESPA’s principal index, the IBOVESPA. The MV model was the least efficient for portfolio selection.

Suggested Citation

  • Farias, Christiano Alves & Vieira, Wilson da Cruz & Santos, Maurinho Luiz dos, 2006. "Portfolio selection models: comparative analysis and applications to the Brazilian stock market," Revista de Economia e Agronegócio / Brazilian Review of Economics and Agribusiness, Federal University of Vicosa, Department of Agricultural Economics, vol. 4(3), pages 1-20.
    • Handle: RePEc:ags:rdeeag:55187
    DOI: 10.22004/ag.econ.55187
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    References listed on IDEAS

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    1. Hiroshi Konno & Hiroaki Yamazaki, 1991. "Mean-Absolute Deviation Portfolio Optimization Model and Its Applications to Tokyo Stock Market," Management Science, INFORMS, vol. 37(5), pages 519-531, May.
    2. Kroll, Yoram & Levy, Haim & Markowitz, Harry M, 1984. "Mean-Variance versus Direct Utility Maximization," Journal of Finance, American Finance Association, vol. 39(1), pages 47-61, March.
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    Cited by:

    1. Salih Çam, 2023. "Asset Allocation with Combined Models Based on Game-Theory Approach and Markov Chain Models," EKOIST Journal of Econometrics and Statistics, Istanbul University, Faculty of Economics, vol. 0(39), pages 26-36, December.

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