Further Research in the Chinese Mid-cap Stock Market by Using the Markowitz Model, Capital Asset Pricing Model, and Fama-French Model

Abstract

This article aims to identify the optimal portfolio of 10 mid-cap stocks in the Chinese stock market. Markowitz model is used to analyze the data from January 1, 2024, to July 1, 2024, including 117 trading days in total, and give some advice on portfolio selection. Markowitz’s model uses “Solver” in Excel to generate different portfolios and gets the optimal portfolio when the Sharpe ratio becomes the largest. In the Capital Asset Pricing Model (CAPM) and the Fama-French model, they can judge whether the stock is worth investing by the result given by linear regression in Excel. It turns out that the optimal portfolio of Markowitz has a Sharpe ratio of 2.14. Although the CAPM and Fama-French Model don’t give an exact percentage of each stock, they can take more conditions and factors into consideration to give a better judgment of the amount of the profit of each certain stock. The research fulfills the blank of using these models in the Chinese mid-cap stock market finding some supporting ideas from CAPM and Fama-French Model.