Modern Portfolio Theory and Its Applications

Abstract

According to the modern portfolio theory, the monthly return data of 4 groups of portfolios (40 stocks) from November 5, 2011, to November 5, 2023, are empirically found: (1) the average monthly yield curve of stock portfolios group#1 and group#4 fluctuates significantly, while the volatility of equity portfolios group#2 and group#3 is relatively moderate. Especially after the new crown epidemic outbreak in 2020, the average monthly returns of all portfolios fluctuated sharply. (2) The expected return of NVDA is the highest among all stocks in the portfolio, and the IMB is the lowest. (3) Compared to the given portfolio returns, the #3 portfolio performs best, while the fund of group #1 performs the worst, and the remaining two portfolios perform well. In addition, if only the portfolio return and standard deviation are used as the portfolio return risk measures, the theoretical portfolio is better than the existing actual portfolio. Therefore, the return of a portfolio of securities will not exceed the yield of the benchmark portfolio at the same level of risk, which, to some extent, supports the hypothesis of the effectiveness of the securities market.