The Research of Optimal Portfolio in Technology Industry Based on Arithmetic Average Return, CAPM, and Fama-French Three-factor Model

Abstract

As hotspots of the stock market, technical companies are always popular to invest. In this background, this paper uses three common models in asset pricing to help the investors to make proper decisions. This paper comes to a conclusion that CAPM forecasts the ideal portfolio expected return with more accuracy than other techniques when the contrast group's time period is shorter than the experimental group's time period. Because Fama-French the three-factor model's factors don't operate over short time periods and arithmetic average return doesn't take enough market factors into account, it might not be more accurate. The conclusion in this paper takes an instruction of investment strategy to technical companies investors. Furthermore, it also helps the investors to allocate a proper portfolio.