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

Abstract

Portfolio optimization is a popular procedure that is widely used in the financial industry. This paper conducts asset allocation analysis for diversified assets, including iron and steel industry, technology, healthcare, information industry and energy areas. There are five assets selected from the different areas which perform well in recent years. This paper uses three methods, namely Meanvariance analysis, CAPM and FF3F model, to find the portfolio optimization. Also, this paper uses the weights to analyse the performance of portfolio in different methods. The result shows that, in the FF3F model, 'LMBEX' contains the largest weight in both maximum sharpe ratio portfolio and minimum variance portfolio, while in the CAPM, 'ADX' and 'LMBEX' account for the largest weight in maximum sharpe ratio portfolio and minimum variance portfolio, respectively. This research may be useful to the potential investors who interested in steel, technology, healthcare, information, and energy industries.