IDEAS home Printed from https://ideas.repec.org/a/gam/jjrfmx/v18y2025i5p269-d1656935.html
   My bibliography  Save this article

Optimal Portfolio Construction Using the Realized Volatility Concept: Empirical Evidence from the Stock Exchange of Thailand

Author

Listed:
  • Sanae Rujivan

    (Research Center in Data Science for Health Study, Division of Mathematics and Statistics, School of Science, Walailak University, Nakhon Si Thammarat 80161, Thailand)

  • Thapakon Khuatongkeaw

    (Research Center in Data Science for Health Study, Division of Mathematics and Statistics, School of Science, Walailak University, Nakhon Si Thammarat 80161, Thailand)

  • Athinan Sutchada

    (Research Center in Data Science for Health Study, Division of Mathematics and Statistics, School of Science, Walailak University, Nakhon Si Thammarat 80161, Thailand)

Abstract

This paper addresses the problem of constructing optimal equity portfolios under volatile market conditions by minimizing realized volatility—an alternative risk quantifier that more accurately captures short-term market fluctuations than traditional variance-based approaches. This issue is particularly relevant for investors seeking robust risk management strategies in dynamic and uncertain environments. We propose a mathematical optimization framework that determines portfolio weights by minimizing realized volatility, subject to expected return constraints. The model is empirically validated using historical data from stocks listed in the Stock Exchange of Thailand 50 (SET50) index. Through a comparative analysis of realized volatility and variance-based optimization across multiple portfolio sizes and return levels, we find that portfolios constructed using realized volatility consistently achieve higher Sharpe ratios, indicating superior risk-adjusted performance. We further introduce an efficiency metric based on the Euclidean distance between optimal portfolio weight vectors to evaluate the stability of allocations under extended investment horizons. The findings underscore the practical advantages of realized volatility in portfolio construction, offering enhanced responsiveness to market dynamics and improved performance outcomes. The novelty of this study lies in integrating realized volatility into a constrained portfolio optimization model and empirically demonstrating its superiority, thereby extending traditional mean-variance methods in both scope and effectiveness.

Suggested Citation

  • Sanae Rujivan & Thapakon Khuatongkeaw & Athinan Sutchada, 2025. "Optimal Portfolio Construction Using the Realized Volatility Concept: Empirical Evidence from the Stock Exchange of Thailand," JRFM, MDPI, vol. 18(5), pages 1-19, May.
  • Handle: RePEc:gam:jjrfmx:v:18:y:2025:i:5:p:269-:d:1656935
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/1911-8074/18/5/269/pdf
    Download Restriction: no

    File URL: https://www.mdpi.com/1911-8074/18/5/269/
    Download Restriction: no
    ---><---

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jjrfmx:v:18:y:2025:i:5:p:269-:d:1656935. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.