Investment Portfolio's Efficiency Evaluation for Markowitz Model and the Index Model

Abstract

In the financial market, the investment portfolio is always a popular topic that investors are interested in and look forward to exploring as well. Since it does affect the expected return and risk of their investment. In this paper, focusing on two of the main models that are Markowitz model and the index model. The paper also collect data from the stock market to analyze different models under different constraints that have their own practical meaning. The result of 5 constraints is concluded below by conducting an efficient frontier and quick ratio. And it finds out that the index model simplified the calculation of variance matrix but assumption under the Markowitz model is more sustainable in reality. The initial result suggests that both models have their advantages and shortcomings, suggesting it is hard to determine which one is more favorable. However, after further discussion between models. the study found that as long as the original data is accurate, Markowitz model gives better results than index model. If investors want to attain very accurate data, Markowitz model is the best choice. In this paper, the research on the two models of investment portfolios can be a consideration when people are choosing their portfolios. It can be used to create a higher return portfolio as well as a lower risk one, which brings people more thoughts on investing portfolios in promoting the finance market in sense.