Optimizing the Portfolio in Malaysian Stock Market with Mean-Variance Model

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Liew Kah Fai, Lam Weng Siew, Lam Weng Hoe


The FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBMKLCI) is a capitalization-weighted stock market index which plays a prominent role to evaluate the performance of the Kuala Lumpur stock market. The investors are interested in obtaining the maximum level of the expected return with the minimum level of the risk. In view of the COVID-19 pandemic, the FBMKLCI has been affected recently. Portfolio optimization is crucial to determine the optimal combination of stocks and proportions with the aim of achieving higher profit at minimum less risk in an investment. The mean-variance portfolio optimization model is robust to minimize the portfolio risk at the expected return. In this paper, an optimal portfolio is constructed with mean-variance model to obtain the target rate of return at minimum risk. The data of this paper consists of returns of 30 stocks of FBMKLCI. The main findings of this paper indicate that the optimal portfolio is able to obtain the target rate of return at minimum risk. The contribution of this study is to construct an optimal portfolio by achieving higher return at minimum risk in portfolio investment using mean-variance model..

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