MASTERING PORTFOLIO OPTIMIZATION: ENHANCING RETURNS ON THE NIGERIAN STOCK EXCHANGE
Authors: Chinedu Emmanuel Okoro, Fiona Abigail Smith
Published: May 2024
Abstract
<p>Modern Portfolio Theory (MPT), pioneered by Harry Markowitz in the early 1950s, has long been a cornerstone of financial decision-making, particularly in portfolio optimization. Markowitz's meanvariance model aimed to guide investors in selecting assets for their portfolios, determining how to make those selections, and assigning weights to each asset. However, as research has highlighted, the mean-variance approach has its limitations and weaknesses, sparking extensive investigation into its shortcomings. This paper delves into the focal point of this research, which involves addressing the limitations and assumptions inherent in Markowitz's model. A multitude of scholars, such as Fuerst (2008), Norton (2009), Ceria and Stubbs (2006), Goldfarb and Iyengar (2003), Jorion (1992), Konno and Suzuki (1995), Michaud (1989a), Bowen (1984), Ravipti (2012), and many others, have dedicated their works to thoroughly scrutinizing these shortcomings and restrictions. Subsequent to the identification of the deficiencies in Markowitz's Mean-Variance model, numerous researchers have sought to enhance and expand the model in various directions. Notable contributions from authors like Jobson, Korkie, and Ratti (1979), Jobson and Korkie (1980), Frost and Savarino (1988), Jorion (1992), Michaud (1998), Polson and Tew (2000), and others have primarily focused on mitigating the estimation error, thus further refining MPT</p>
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