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Research on Portfolio Optimization Based on Markowitz Model and Single Index Model

In: Proceedings of the 2025 International Conference on Financial Risk and Investment Management (ICFRIM 2025)

Author

Listed:
  • Yufei Jin

    (The University of New South Wales)

Abstract

With the development of the economy, more and more retail investors participate in the stock market. The research aim of this study is to advise ordinary retail investors on how to build portfolios using Markowitz model and the single index model. The data used are the stock prices of 22 risky assets including SPX500 from 2004 to 2024, the stocks come from four different industries and are randomly selected from the S&P 500. This study calculates the global minimum variance portfolios and the optimal portfolios under 5 constraints using Markowitz model and single index model respectively and compares their performance. Based on the research, the performance of portfolios constructed by the two models was not much different under the 5 constraints. In most cases, the portfolios constructed by the Markowitz model performed better. In addition, if retail investors want to minimize the risk of their portfolios, it is best to include a stock market index in the portfolios. If retail investors want to make the Sharpe ratio of the investment portfolios as large as possible, they should not limit the overall range of arbitrage and leverage of portfolios.

Suggested Citation

  • Yufei Jin, 2025. "Research on Portfolio Optimization Based on Markowitz Model and Single Index Model," Advances in Economics, Business and Management Research, in: Maizaitulaidawati Md Husin (ed.), Proceedings of the 2025 International Conference on Financial Risk and Investment Management (ICFRIM 2025), pages 150-162, Springer.
    • Handle: RePEc:spr:advbcp:978-94-6463-748-9_18
    DOI: 10.2991/978-94-6463-748-9_18
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