• ISSN: 2010-023X (Print)
    • Abbreviated Title: Int. J. Trade, Economics and Financ.
    • Frequency: Quaterly
    • DOI: 10.18178/IJTEF
    • Editor-in-Chief: Prof.Tung-Zong (Donald) Chang
    • Managing Editor: Ms. Shira. W. Lu
    • Abstracting/ Indexing:  Crossref, Electronic Journals Library , EBSCO
    • E-mail: ijtef.editorial.office@gmail.com
HOME > Archive > 2022 > Volume 13 Number 4 (Aug. 2022) >
IJTEF 2022 Vol.13(4): 115-120 ISSN: 2010-023X
DOI: 10.18178/ijtef.2022.13.4.733

CAPM Model and Modern Portfolio Theory

Xiaoting Zhou

Abstract—Mean-Variance Model (Modern portfolio theory) maybe the most famous model in financial field. It assesses a portfolio which’s the expected return (mean) is maximized under a given risk (variance). It comes from assumption that investor want as high as return while as low as risk as he could when he invested a couple of assets (a portfolio is the collection of many assets). This model could give us the many optimal portfolio (efficient portfolio frontier) when we know every asset’s expect return and their covariance matrix. The accuracy estimating the covariance matrix is the most essential part implementing portfolio optimization.
Thus in this project, we will perform the mean variance portfolio of the targeted portfolio with Ledoit-Wolf shrinkage methodology which can give us robust estimation of covariance matrix. Then we will use the optimal portfolio to visualize the efficient frontier and compare the optimal portfolio with index or other randomly chosen portfolio.

Index Terms—Economic, CAMP model, modern portfolio theory, stocks.

The author is with the JSerra Catholic High School, USA (e-mail: zonazhou99@gmail.com).

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Cite: Xiaoting Zhou, "CAPM Model and Modern Portfolio Theory," International Journal of Trade, Economics and Finance vol.13, no.4, pp. 115-120, 2022.

Copyright © 2022 by the authors. This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited (CC BY 4.0).

 

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