APPLICATION OF THE MARKOWITZ MODEL AND INDEXMODEL IN REAL STOCK MARKETS

Abstract

The complete Markowitz Model and the Index Model have a wide range of applications for portfolios in the stock
market, and in this paper, we want to apply these two models in a realistic stock market. In this paper, ten stocks
belonging to different industries and the S&P 500 equity index are selected as a portfolio, and the 1-month Fed Funds
rate is chosen as the risk-free rate. Through proper data aggregation and processing, we calculate the weights of
each stock in the portfolio in the case of minimal portfolio variance and maximal Sharpe ratio under five additional
constraints using the complete Markowitz Model and the Index Model, respectively. Finally, we can calculate the
minimal variance frontier, efficient frontier, inefficient frontier, and capital allocation line under each constraint, plotted
using the Solver Table in Excel