Portfolio Theory Application and Enhancement in the Chinese Stock Market

Abstract

Portfolio Theory is commonly used in funds management because it lowers risk and maximises return rate. As the research progresses, the big gap in its efficiency in the Chinese stock market must be filled. Therefore, the main topic for this paper is the Portfolio Theory's application in the Chinese Stock Market and what improvements could be made. This research method is as follows: 1) collecting relative papers through databases after filtering, 2) classifying papers' purpose and results, and 3) analysing their conclusions and summarising the current state of Portfolio Theory in China. This paper discovers the increasing suitableness of the Portfolio Theory in the Chinese stock market and derives several methods for improvements, such as taking risk attitudes, stock preferences, and skewness into consideration. In addition, variation of asset choices during crises such as COVID-19 is considered to optimise the portfolio. In conclusion, the Chinese stock market still shows immaturity in many aspects. For example, it is suggested that governments make policies to keep companies' cash flow transparent.