Proceedings of the 2021 3rd International Conference on Economic Management and Cultural Industry (ICEMCI 2021)

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Comparison of the Applicability of Markowitz Model and Index Model Under 5 Real-World Constraints for Diverse Investors

Authors
Ke Qu1, *, †, Yi Tian2, *, †, Jingying Xu3, *, †, Jiefu Zhang4, *, †
1College of Liberal Arts and Sciences, University of Colorado, Denver, 1380 Lawrence Street, United States
2Warwick Business School, University of Warwick, Coventry CV4 7AL, United Kingdom
3Columbian College of Arts & Sciences, The George Washington University, Washington DC, 20052, United States
4Department of Economics, University College London, London WC1H 0AX, United Kingdom
†

These authors contributed equally.

*Corresponding author. Email: jeff.zhang.19@ucl.ac.uk
Corresponding Authors
Ke Qu, Yi Tian, Jingying Xu, Jiefu Zhang
Available Online 15 December 2021.
DOI
10.2991/assehr.k.211209.216How to use a DOI?
Keywords
Investment Management; Optimal Portfolio; Markowitz Model; Index Model; Investment Constraints
Abstract

A notable trend observed within our research is that, despite the variations in actual values, both models have agreed on the stocks that are given the most extreme weights, either positive or negative. While the rest of the stocks, whose weights are closer than 0 and are used for nuanced balancing to arrive at the optimum, are allocated with significantly different weights as the models’ underlying computations of standard deviation differ. Under the conditions of C1 to C3, Markowitz Model consistently performs better in predicting minimum variance portfolio, while Index Model is particularly apt at forecasting maximum Sharpe ratio portfolio. Such discrepancies, however, disappear under C4 and C5, where the Index Model claims greater potency in predicting both portfolios. However, their relative advantages over each other are never so significant under any constraint to demonstrate a consequential superiority hence arriving at an assertive conclusion. Nevertheless, our results may still provide an insight into the portfolio construction for diversified customers with multifarious optimization goals under eclectic circumstances.

Copyright
© 2021 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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Volume Title
Proceedings of the 2021 3rd International Conference on Economic Management and Cultural Industry (ICEMCI 2021)
Series
Advances in Economics, Business and Management Research
Publication Date
15 December 2021
ISBN
978-94-6239-483-4
ISSN
2352-5428
DOI
10.2991/assehr.k.211209.216How to use a DOI?
Copyright
© 2021 The Authors. Published by Atlantis Press International B.V.
Open Access
This is an open access article under the CC BY-NC license.

Cite this article

risenwbib
TY  - CONF
AU  - Ke Qu
AU  - Yi Tian
AU  - Jingying Xu
AU  - Jiefu Zhang
PY  - 2021
DA  - 2021/12/15
TI  - Comparison of the Applicability of Markowitz Model and Index Model Under 5 Real-World Constraints for Diverse Investors
BT  - Proceedings of the 2021 3rd International Conference on Economic Management and Cultural Industry (ICEMCI 2021)
PB  - Atlantis Press
SP  - 1323
EP  - 1332
SN  - 2352-5428
UR  - https://doi.org/10.2991/assehr.k.211209.216
DO  - 10.2991/assehr.k.211209.216
ID  - Qu2021
ER  -