Portfolio Optimization and Performance Evaluation in Malaysia: A Comparative Analysis of Markowitz Mean–Variance and Sharpe Single Index Models

This study examines the performance of portfolio optimization methods within the Malaysian capital market, where equities, bonds, and sukuk provide a unique mix of investment opportunities. The purpose is to evaluate how traditional Markowitz mean–variance optimization compares with the Sharpe single index model in constructing efficient portfolios under Malaysia’s dual conventional–Islamic financial system. The research addresses a gap in existing studies, which often focus on single asset classes or benchmark comparisons without integrating primary issuance, corporate actions, and sectoral dynamics into a full portfolio framework. A mixed approach was applied, combining quantitative analysis of Bursa Malaysia securities across banking, plantation, technology, and telecommunications sectors with respondent perspectives from retail investors, fund managers, and regulators. Risk and return were measured using weekly adjusted returns corrected for thin trading, while portfolio performance was evaluated through Sharpe, Treynor, Jensen, and Profitability indexes. Results demonstrate that the Markowitz model produces superior diversification and higher risk-adjusted performance, while the Sharpe single index model offers greater simplicity and usability for retail investors. Respondent insights reveal a clear divide: fund managers prioritize diversification precision, whereas retail participants value ease of implementation. The findings provide actionable implications for investors, unit trust design, and regulatory policy in emerging markets.