Application of Modern Portfolio Theory in Stock Market

DOI

10.2991/aebmr.k.220307.432How to use a DOI?

Keywords

Investment strategy; Diversification; Modern portfolio theory; Mean-variance analysis

Abstract

When investors face investing problems, the main issue is to make decisions on how to allocate resources among the variety of different assets, especially in the rapidly growing stock market.The paper aims to design an investment strategy for risk-averse investors. We use modern portfolio theory and apply mean-variance analysis, to quantify expected portfolio returns and acceptable levels of portfolio risk and provides methods to select an optimal portfolio. The daily adjusted closing stock prices between January 2010 and January 2021 of 5 companies: Facebook, Amazon, Apple, Netflix, and Google, are used. From the results we can conclude that such mean-variance optimization is applicable. Furthermore, we can obtain minimum variance at level of 23% (with expected return at level of 28%) which illustrates the risky nature of business environment in the country. Additionally, the higher return (at level of 33%) might be achieved if the investor is willing to take a risk (at level of 25%) higher than the of minimum risk. Limitations of the present research are discussed at the end.

Copyright

© 2022 The Authors. Published by Atlantis Press International B.V.

Open Access

This is an open access article under the CC BY-NC license.

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TY  - CONF
AU  - Yumeng Liu
PY  - 2022
DA  - 2022/03/26
TI  - Application of Modern Portfolio Theory in Stock Market
BT  - Proceedings of the 2022 7th International Conference on Financial Innovation and Economic Development (ICFIED 2022)
PB  - Atlantis Press
SP  - 2653
EP  - 2658
SN  - 2352-5428
UR  - https://doi.org/10.2991/aebmr.k.220307.432
DO  - 10.2991/aebmr.k.220307.432
ID  - Liu2022
ER  -