Long-term General Asset Allocation for individual investors in Chinese securities market

Abstract

Facing the boom of online transaction applications in Chinese securities market, individual investors in China vacillate between different assets while allocating assets. On account of the individual investors’ inferior ability to take risk, portfolio will be their best choices. However due to their unacquaintance to modern portfolio theory, individual investors need some instructions. As proved by Brinson in 1986, over 90% of the success of a portfolio owe to general asset selection. Hence, this paper primarily focused on providing suggestions to individual investors on general asset selection to help them to construct a portfolio in China securities market at present. Initially, this paper utilized the Mean-Variance model and CML approach to depict the market and analyzed the long-term asset allocation of multi-asset for individual investors. Based on the results, this paper suggested that individual investors should focus more on bond asset: with a portfolio of 97.37% of bond asset and 2.63% of stock asset, investors will be able to acquire a yield of 4.54% (annualized). And through this study, this paper found that Chinese securities market is not mature enough and teemed with regulations, making it to be competent than other mature market.