APPLICATION OF MARKOWITZ PORTFOLIO OPTIMIZATION ON BULGARIAN STOCK MARKET FROM 2013 TO 2016

Abstract

Investors of any time and of any investment area are faced with the conflicting objective of minimizing risks and simultaneously maximizing returns. Considering the trade-offs between risk and return, Harry Markowitz, an American financial economist, proposed the so-called optimal portfolio theory in 1952. The aim of this paper is to provide a practical study of Markowitz model on the Bulgarian stock market from 2013 to 2016. The significance of this study arises from the fact that although Markowitz model has been widely used by investors worldwide, its application on Bulgarian stock market is still relatively limited. From the data inputs which are weekly closing prices of 50 stocks traded on Bulgarian Stock Exchange between January 2013 and December 2016, efficient frontiers in addition to optimal portfolios are determined on the basis of Markowitz theory. As a result, Bulgarian investors can select their own optimal portfolio that maximizes portfolio rate of return with respect to their risk preference.