Efficiency Frontier for Chinese Stock Markets under Influence of Financial Crises

Abstract

The purpose for this research is to find out the influence of financial crises on Chinese stock market and focus on efficiency frontier. For research methodology, the efficiency frontiers are built through linear programming with an optimization model for Chinese stock markets portfolios in different periods and for a portfolio from Chinese, UK and USA stock markets together under current financial crisis. This research finds out that Chinese markets have positive risk return trade off and it varies under the influence of financial crises and if further diversified with western markets, higher investment efficiency can be achieved. This paper offers a suitable method to construct Chinese stock market efficiency frontier, and suggests that further diversification can improve investment efficiency currently. This paper enjoys the originality that it perhaps is the first paper to build Chinese stock market efficiency frontier through linear programming.