Research Article
Application of Portfolio Optimization Based on Mean-Variance Theory in Financial Market
@INPROCEEDINGS{10.4108/eai.28-10-2022.2328449, author={Yuheng Tian and Yijin Zhao}, title={Application of Portfolio Optimization Based on Mean-Variance Theory in Financial Market}, proceedings={Proceedings of the International Conference on Financial Innovation, FinTech and Information Technology, FFIT 2022, October 28-30, 2022, Shenzhen, China}, publisher={EAI}, proceedings_a={FFIT}, year={2023}, month={4}, keywords={mean-variance; portfolio optimization; annual rate of returns; dividend yields; inflation}, doi={10.4108/eai.28-10-2022.2328449} }- Yuheng Tian
Yijin Zhao
Year: 2023
Application of Portfolio Optimization Based on Mean-Variance Theory in Financial Market
FFIT
EAI
DOI: 10.4108/eai.28-10-2022.2328449
Abstract
This paper uses mean-variance portfolio theory to find the optimal portfolios among stocks and indices based on historical annual rate of returns calculated from stock prices. The stocks consist primarily of the S&P 500, NYSE 100, NASDAQ 100, Russell 2000, and BRKA indices, as well as risk-free assets. This paper analyzes the deviation of annual rate of returns based on several factors and validates it using data from the S&P 500 Index from 1960 to 2021. The findings show that annual dividend yields are negatively correlated with annual rate of returns, implying that when dividend yields are high, returns are likely to fall, mainly because high dividend yields will lead to lower stock prices. Further research finds that annual inflation rate is positively related to returns. This paper indicates that the level of annual return is affected by the annual dividend yield and inflation rate, which affects the portfolio optimization decision.
