Optimal Composition of International Equity Portfolio

Abstract

The objective of the thesis is to measure and compare the performance of portfolios by different portfolio optimization models in the different sample periods. We apply four models in our thesis: naïve strategy, Markowitz model, Black’s model, and Tobin model. We use those models to construct efficient portfolios, then calculate the performance measures. We calculate the Sharpe ratio, Roy’s Safety First ratio, Sortino ratio, information ratio, maximum drawdown, and the final wealth for each portfolio. We choose 30 stocks from the American stock market from 01/01/2011 to 31/12/2020 and collect the weekly adjusted closed prices for the calculation. We divided those stock prices into two parts, in-sample period (1/1/2011-31/12/2015) and out-of-sample period (1/1/2016-31/12/2020). We also calculate the performance measures for the S&P 500 index and set the index as a benchmark.