Application and Comparison of Markowitz Model and Index Model in Hong Kong Stock Market

Abstract

This paper aims to study the differences between the index model and the Markowitz model in the Hong Kong stock market and American stock market and explore the advantages and disadvantages of these two models, to provide an investment suggestion for investors who want to enter the Hong Kong stock market. This paper uses the price data of 15 stocks in the recent two years to calculate their return, standard deviation, beta, and other parameters. Using the index model and the Markowitz model to build the portfolio through these parameters. The research results are similar to some research results of applying the index model and the Markowitz model to the American stock market. The portfolios constructed by the two models are almost the same, but the result of the index model will be slightly better than that of the Markowitz model, and the amount of calculation required to construct the index model is much less than that of the Markowitz model. Therefore, this paper recommends investors who want to enter the Hong Kong stock market use the index model when building their optimal portfolio.