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2023•BCP Business & ManagementOpen access

Application of Mean-Variance Model in the U.S. Capital Market

Qinyuan Luo

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Abstract

Portfolio in stock market is an asset that people buy in the hopes of a return or appreciation, or both. Portfolio investment is not active, unlike direct investment, which means managing it by alone. A portfolio can help people spread risk and decrease risk, because it can minimize the negative impact of the economy. This paper analyzes asset allocation for four different companies. In this paper, three methods of mean-variance analysis, CAPM and FF3F model are used to optimize the portfolio. In addition, this paper will calculate different weights to analyze the maximum return of the portfolio. The results show that in the FF3F model. In the Sharpe ratio portfolio, "POAHY" is the security with the most weight. The portfolio with the highest Sharpe ratio weight in CAPM model is "POAHY". The outcome in this paper benefits the related investors in financial markets.

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Portfolio in stock market is an asset that people buy in the hopes of a return or appreciation, or both. Portfolio investment is not active, unlike direct investment, which means managing it by alone. A portfolio can help people spread risk and decrease risk, because it can minimize the negative impact of the economy. This paper analyzes asset allocation for four different companies. In this paper, three methods of mean-variance analysis, CAPM and FF3F model are used to optimize the portfolio. In addition, this paper will calculate different weights to analyze the maximum return of the portfolio. The results show that in the FF3F model. In the Sharpe ratio portfolio, "POAHY" is the security with the most weight. The portfolio with the highest Sharpe ratio weight in CAPM model is "POAHY". The outcome in this paper benefits the related investors in financial markets.

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Available abstract

Portfolio in stock market is an asset that people buy in the hopes of a return or appreciation, or both. Portfolio investment is not active, unlike direct investment, which means managing it by alone. A portfolio can help people spread risk and decrease risk, because it can minimize the negative impact of the economy. This paper analyzes asset allocation for four different companies. In this paper, three methods of mean-variance analysis, CAPM and FF3F model are used to optimize the portfolio. In addition, this paper will calculate different weights to analyze the maximum return of the portfolio. The results show that in the FF3F model. In the Sharpe ratio portfolio, "POAHY" is the security with the most weight. The portfolio with the highest Sharpe ratio weight in CAPM model is "POAHY". The outcome in this paper benefits the related investors in financial markets.

Key concepts: Capital asset pricing model, Sharpe ratio, Portfolio, Market portfolio, Rate of return on a portfolio, Portfolio optimization, Post-modern portfolio theory, Black–Litterman model

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