Comparison of Markowitz Model and Single-Index Model on Portfolio Selection of Malaysian Stocks

ArXiv ID: 2401.05264 “View on arXiv”

Authors: Unknown

Abstract

Our article is focused on the application of Markowitz Portfolio Theory and the Single Index Model on 10-year historical monthly return data for 10 stocks included in FTSE Bursa Malaysia KLCI, which is also our market index, as well as a risk-free asset which is the monthly fixed deposit rate. We will calculate the minimum variance portfolio and maximum Sharpe portfolio for both the Markowitz model and Single Index model subject to five different constraints, with the results presented in the form of tables and graphs such that comparisons between the different models and constraints can be made. We hope this article will help provide useful information for future investors who are interested in the Malaysian stock market and would like to construct an efficient investment portfolio. Keywords: Markowitz Portfolio Theory, Single Index Model, FTSE Bursa Malaysia KLCI, Efficient Portfolio

Keywords: Markowitz Portfolio Theory, Single Index Model, FTSE Bursa Malaysia KLCI, Efficient Portfolio, Sharpe Ratio, Equity

Complexity vs Empirical Score

  • Math Complexity: 6.0/10
  • Empirical Rigor: 7.0/10
  • Quadrant: Holy Grail
  • Why: The paper applies well-established but advanced portfolio optimization theory (Markowitz and Single Index models) with constraints and efficient frontiers, requiring substantial math. It is backtest-ready, using 10-year historical data, multi-constraint optimization with Excel Solver, and detailed empirical comparisons and visualizations for a specific market.
  flowchart TD
    A["Research Goal: Compare Markowitz Model vs Single Index Model for Malaysian Stocks"] --> B["Data Collection<br>10-year Monthly Returns<br>10 KLCI Stocks + Risk-Free Asset"]
    B --> C["Methodology: Portfolio Optimization"]
    C --> D["Constraint Application<br>5 Different Constraints"]
    D --> E["Compute: Markowitz Model<br>Min Var & Max Sharpe"]
    D --> F["Compute: Single Index Model<br>Min Var & Max Sharpe"]
    E --> G["Analysis & Comparison"]
    F --> G
    G --> H["Key Outcomes:<br>Tables & Graphs comparing models<br>Insights for Investors"]