An Extension of Markowitz' Modern Portfolio Theory for Long-Term Equity Investors

Gabler, Andreas

doi:10.2139/ssrn.3449710

Cited by 3 publications

(3 citation statements)

References 31 publications

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“…Another reason that necessitates the assistance of effective mathematical models or algorithms is the difficulty in calculating the parameters required by portfolio theory. The theory assumes that asset returns follow a normal distribution, but it may not adhere to this assumption [10]. In an analysis based on the Chinese stock market, the author found that because the parameters of the actual model can only be estimated from historical data, there exists an estimation error between the final data and the real data.…”

Section: Results Analysis and Discussionmentioning

confidence: 99%

Limitations and Critique of Modern Portfolio Theory: A Comprehensive Literature Review

Zhang

2024

AEMPS

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This paper employs a systematic literature review approach to select and summarize 12 papers published within the past five years. It critically assesses the limitations of Modern Portfolio Theory (MPT), including its reliance on the assumptions of a strong, efficient market, rational investor behaviour, and excessive dependence on historical data. Furthermore, the paper explores how emerging theories such as Behavioral Portfolio Theory (BPT) and Behavioral Finance offer remedies for the deficiencies in traditional investment theories. Through a comprehensive review of relevant literature, the study delves into the strengths and applications of these theories and investigates whether they can offer more rational and adaptable investment strategies for investors and decision-makers. The authors assert that the emergence of these emerging theories expands the range of choices and possibilities within the field of finance, potentially assisting investors in better navigating market uncertainties and complexities while enhancing the effectiveness of investment decisions. Consequently, this research underscores the significance of considering emerging theories in portfolio construction to adapt to the ever-changing financial landscape.

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Section: Results Analysis and Discussionmentioning

confidence: 99%

Limitations and Critique of Modern Portfolio Theory: A Comprehensive Literature Review

Zhang

2024

AEMPS

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“…Investors are risk averse and demand higher returns for riskier investments. Therefore, efforts are made to control portfolio risk without being influenced by declining rates of return (Gabler, 2019). To reduce portfolio variance (risk), the correlation between the assets that make up the portfolio must be inversely proportional (negative).…”

Section: Literature Reviewmentioning

confidence: 99%

Optimization of Stock Portfolio of Value30 Index And Growth30 Index Using the Markowitz Model and Sharpe Model

Kalebos

2022

JICP

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This study aims to determine the results of optimizing stock portfolios on the Value30 and Growth30 indexes on the Indonesia Stock Exchange based on the Markowitz Model and Sharpe Model. There are seven stocks that are consistently listed on the Value30 index selected with the code ADRO, BJBR, ELSA, ITMG, PTBA, PTPP, UNTR and seven stocks that are consistently listed on the Growth30 index selected with the code ACES, BBCA, BBRI, CPIN, ERAA, TBIG , TOWR. The data is taken from the period January 2015 to December 2021. Using the Markowitz model on the Value30 index stock yields a return of 1.08% and a standard deviation of 8.02% (coefficient of variation/cv 7.426). Meanwhile, the Growth30 index stock yielded a return of 1.36% and a standard deviation of 4.46% (cv 3.279). Using the Sharpe model on the Value30 index stock yields a return of 2.23% and a standard deviation of 11.01% (cv 4.937). Meanwhile, the Growth30 index stock yielded a return of 1.54% and a standard deviation of 4.88% (cv 3.169). This study concludes that the Sharpe Model provide a more optimal investment return than the Markowitz Model for both the Value30 and Growth30 index stocks. Keywords: Index Growth30, Index Value30, Model Markowitz, Model Sharpe, Portfolio.

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“…Therefore, efforts are made to control portfolio risk without being influenced by declining rates of return. (Gabler, Andreas, 2019). To reduce portfolio variance (risk), the correlation between the assets that make up the portfolio must be inversely proportional (negative).…”

Section: Literature Reviewmentioning

confidence: 99%

Optimization of Stock Portfolio of Value30 Index and Growth30 Index Using The Markowitz Model and Sharpe Model

Kalebos

Rudianto

2022

AIJBS

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This study aims to determine the results of optimizing stock portfolios on the Value30 and Growth30 indexes on the Indonesia Stock Exchange based on the Markowitz Model and Sharpe Model. There are seven stocks that are consistently listed on the Value30 index selected with the code ADRO, BJBR, ELSA, ITMG, PTBA, PTPP, UNTR and seven stocks that are consistently listed on the Growth30 index selected with the code ACES, BBCA, BBRI, CPIN, ERAA, TBIG , TOWR. The data is taken from the period January 2015 to December 2021. Using the Markowitz model on the Value30 index stock, from the comparison of the yields a return and standard deviation, the Coefficient of Variation/CV value is 7.426, and for the Growth30 index stock, the CV value is 3.279. Meanwhile, by using the Sharpe model on the Value30 index stock, a CV value of 4.937 was obtained, while the Growth30 index stock obtained a CV value of 3.169 This study concludes that the use of the Sharpe Model provides more optimal results than the Markowitz Model in portfolio formation both on the Value30 index stock and the Growth30 index with the proportion of funds being dominated by ADRO stocks for the Value30 index and BBCA stocks for the Growth30 index.

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An Extension of Markowitz' Modern Portfolio Theory for Long-Term Equity Investors

Cited by 3 publications

References 31 publications

Limitations and Critique of Modern Portfolio Theory: A Comprehensive Literature Review

Limitations and Critique of Modern Portfolio Theory: A Comprehensive Literature Review

Optimization of Stock Portfolio of Value30 Index And Growth30 Index Using the Markowitz Model and Sharpe Model

Optimization of Stock Portfolio of Value30 Index and Growth30 Index Using The Markowitz Model and Sharpe Model

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