Tools and Techniques for Economic Decision Analysis (original) (raw)
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Analysis of the Markowitz Method and the Single Index Method in Determining the Optimal Portfolio
Almana : Jurnal Manajemen dan Bisnis
Investors generally make investments to get the maximum return with minimal risk. The optimal portfolio is a method that can be used to determine the stock portfolio that produces the maximum return with the least risk. The purpose of this study is to determine the accuracy of the Markowitz method and the single index method in determining the optimal portfolio and to determine whether or not there are differences in the results of optimal portfolio calculations using the Markowitz Method and the Single Index Method. The study population includes LQ-45 companies listed on the Indonesia Stock Exchange for the period 2014-2018. The sampling method used in this study was purposive sampling, based on predetermined criteria obtained from 18 sample companies. The method used is the One-Sample t-Test and the Independent Sample t-Test. The results of this study indicate that there is no difference between the Markowitz Method and the Single Index Method in determining the Optimal Portfolio.
An Analytical Study on Harry Markowitz Portfolio Construction of Selected Industries
IRA-International Journal of Management & Social Sciences, 2019
Risk and return are two faces of the same coin, Investments made by the investors are certain whereas the returns expected are uncertain when measured known as risk. The primary objective of the paper is to study the risk and return measures available for decision making, secondly to apply the techniques of beta and standard deviation for analyzing the risk and expected return for analyzing the return and to construct an optimal portfolio by applying Harry Markowitz portfolio construction technique. The Methodology applied is analytical and descriptive and application of Harry Markowitz portfolio Risk and Return techniques for the construction of an optimal portfolio.
International Journal of Economics and Financial Issues, 2015
Capital Asset Pricing Model is widely used by investors to estimate the return or the moving behavior of the stock and Markowitz Model is employed to achieve portfolio diversification. This study examine whether CAPM is valid to forecast the behaviour of the each individual stock and its return as well as its validity in the portfolio with stocks listed in Malaysia. Second, it evaluates the suitability of Markowitz Model to evaluate the performance of the Malaysia investment portfolio. This is done within the framework of 2010 to 2014 using weekly data of 60 companies. OLS unbiased estimator, autocorrelation and heterodasticity problems are to be conducted to test the validity of the model. It is concluded that CAPM is reasonable to be the indicator of stock prices in Malaysia as well as in portfolio basket. It proves that there is linearity in CAPM but unique risk and systematic do not need to be captured. Managers can use CAPM as a proxy to estimate their stock return and diversif...
https://www.ijrrjournal.com/IJRR\_Vol.9\_Issue.11\_Nov2022/IJRR-Abstract25.html, 2022
This Markowitz model can overcome the weakness of random diversification. The assumption that increasing the number of shares in a portfolio continuously will provide greater benefits is different from the Markowitz model. This model believes that the addition of stocks continuously in one portfolio, at a certain point, will further reduce the benefits of diversification and will increase the level of risk (Tandelilin, 2010). The Markowitz portfolio also provides quite efficient results because it has a positive expected return value from each portfolio (Supriyadi and Hadmar, 2009). Single Ithe single model is one method for forming a portfolio that can be used by investors. The optimal portfolio analysis technique using the Single Index Model is a security analysis technique that is carried out by comparing the excess return to beta (ERB) to the cut off rate (Ci) of each stock. This study uses a population of issuers that are included in the LQ45 calculation for the period February 2018 - July 2020 with a total sample using the purposive sampling method of 31 samples. Based on the optimal portfolio formation of the Markowitz Model, 4 stocks form a portfolio exexpectedeturn of 0.0074 while for portfolio risk of 0.0428 and the proportion of funds formed is BBCA 50.81%, E XCL 9.83%, ICBP 30, 59%, and KL B F 8, 77. The formation of a single index model portfolio obtained 2 optimal portfolio formations with a portfolio return of 0.1486 and a risk of 0.0873 while the proportion of funds formed by ANTM was 10.5%, and BBCA was 89.5%. Based on the results of the study proves that the single index model can generate a profit of 14.86% with a risk level of 8.73% compared to the Risk-Free Assets Return rate of 5.17%. Meanwhile, the Markowitz model can generate a portfolio return of 0.74% with a portfolio risk of 4.28% not providing optimal returns because the expected return from the Markowitz model portfolio is lower than the Risk-Free Asset Return Rate.
Zenodo (CERN European Organization for Nuclear Research), 2022
This study aims to determine the optimal portfolio formation by using the Markowitz model on the IDX30 index stock, in order to obtain stocks that are used as investment choices or form a portfolio. The population in this study is all shares of issuers or companies that have been included in the IDX30 Index on the Indonesia Stock Exchange for the period February 2017-January 2022, as many as 53 companies while the sample in this study was 50 company shares selected based on nonprobability sampling technique with purposive sampling method. Data collection is done by using documentation techniques. Data analysis was performed using the Markowitz model. The results of this study indicate that of the 50 IDX30 Index stocks that were used as research samples, 14 stocks were included in the optimal portfolio, namely ICBP, MIKA, TLKM, ACES, UNTR, CPIN, MDKA, BBCA, TOWR, ADRO, KLBF, PTBA, TBIG, ANTM stocks. The optimal portfolio that is formed produces an expected return portfolio value of 0.0075 or 0.75% per month with a portfolio risk level of 0.0313 or 3.13% per month. The formation of an optimal portfolio is more recommended for investors who want to invest in IDX30 Index shares on the Indonesia Stock Exchange. This is because the portfolio formed as a form of investment diversification is proven to be able to reduce investment risk compared to investing in only one stock.
Using the Markowitz mean-variance portfolio optimization theory, researchers have shown that the traditional estimated return greatly overestimates the theoretical optimal return, especially when the dimension to sample size ratio p/n is large. propose a bootstrap-corrected estimator to correct the overestimation, but there is no closed form for their estimator. To circumvent this limitation, this paper derives explicit formulas for the estimator of the optimal portfolio return. We also prove that our proposed closed-form return estimator is consistent when n ? 1 and p/n ? y 2 (0, 1). Our simulation results show that our proposed estimators dramatically outperform traditional estimators for both the optimal return and its corresponding allocation under different values of p/n ratios and different interasset correlations q, especially when p/n is close to 1. We also find that our proposed estimators perform better than the bootstrap-corrected estimators for both the optimal return and its corresponding allocation. Another advantage of our improved estimation of returns is that we can also obtain an explicit formula for the standard deviation of the improved return estimate and it is smaller than that of the traditional estimate, especially when p/n is large. In addition, we illustrate the applicability of our proposed estimate on the US stock market investment.
East African scholars journal of economics, business and management, 2022
Investment is an activity that related to investing some funds in real assets or financial assets such as land, gold, stocks, deposits, bonds and other forms. The high level of risk that will be faced by investors, make investors to take anticipatory steps. One of the solutions is through diversification in portfolio forming. The importance of portfolio forming is to maximize the function and value of an asset in order to make greater returns with a certain level of risk, or to obtain certain returns with the minimum level of risk. Portfolio analysis is carried out to find the most optimal company as an investment object. This research uses the Markowitz model for food and beverage company stocks based on data from December 2019 to November 2020. The results showed there are 7 stocks that were selected as candidates for optimal portfolio forming. A proportion of the allocation of each stock are PT Siantar Top Tbk (STTP) 10.14%, PT Sentra Food Indonesia Tbk (FOOD) 8.95%, PT Pratama Abadi Nusa Industri Tbk (PANI) 5.06%, PT Prima Cakrawala Abadi Tbk (PCAR) 0.37%, PT Ultrajaya Milk Industry & Trading Company Tbk (ULTJ) 20.61%, PT Nippon Indosari Corpindo Tbk (ROTI) 48.05%, and PT Sekar Bumi Tbk (SKBM) 6.82%. With that combination, it gives the expected return of 21.12% and level of risk 7.95%.
Extension of Markowitz Model for Portfolio Analysis
This paper focused on portfolio analysis that set-up among 10 selected stocks traded on Kuala Lumpur Stock Exchange (KLSE). Markowitz model is the main method used to build the optimal portfolio for this paper. There are two type of analysis were conducted in this paper which are daily analysis and weekly analysis. Among this 2 analysis, weekly analysis provides a higher profit level with lower risk level than daily analysis.
Majalah Ilmiah Bijak, 2020
This research was conducted to determine the composition of the stock portfolio formed by the Random model, the Markowitz model, and the Single Index model and which portfolio composition was optimal from the results of calculations using the Random model, the Markowitz model, and the Single Index model. The method used is a quantitative analysis using stock price data in the LQ45 Index group listed on the Indonesia Stock Exchange (IDX). In the first random process the results of calculating the expected return value for each share and obtained portfolio candidates can produce a total expected return of 0.2726 or 27.26%. The Markowitz method produces 14 shares that have a positive value, which means it enters into portfolio-forming shares, while the Single Index Model obtains diversified investments in the form of a portfolio of 6 shares
Dead or Alive: Modern Portfolio Theory Based on Financial Analysis
Universal Journal of Accounting and Finance, 2020
Currently, there are a lot of criticisms on Modern Portfolio Theory (MPT). Black Swan argument claims that in the event of a financial turmoil, the stock prices move beyond what is expected by normal distribution. This study empirically investigates whether it is possible to apply MPT by using additional criteria. The criteria used in this research are related to financial analysis, a well-known field in corporate finance. The ratios used are debt-to-equity and return on equity. According to the analysis, Modern portfolio theory can be applied by the use of these additional criteria. The analysis with debt-to-equity criterion reveals that Portfolios 3 and 5 which have lower debt-to-equity ratios performed better in the period. The analysis with return on equity reveals that only Portfolio 8 which has 9 companies with ratios larger than 0.2 has positive return whereas the other portfolios have negative returns. The results further show that, while applying MPT with these criteria is perfectly possible and sound, the investor could diversify further by selecting portfolios with higher number of securities and still have better financial ratios. This research to the authors' knowledge brings a novelty by proposing these selection criteria in MPT. The suggested method could be applied by practitioners in this field. This study also targets to bring a new direction to the ongoing debate whether the theory of Markowitz (commonly known as father of Modern Portfolio Theory) is dead or alive.