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In applying Markowitz`s portfolio selection model to the stock market, we developed a comprehensive investment decision-making framework including key inputs for portfolio theory (i.e., individual stocks` expected rate of return and covariance) and minimum required expected return. For estimating the key inputs of our decision-making framework, we utilized an exponentially weighted moving average (EWMA) which places more emphasis on recent data than the conventional simple moving average (SMA). We empirically analyzed the investment results of the decision-making framework with the same 15 stocks in Samsung Group Funds found in the Korean stock market between 2007 and 2011. This five-year investment horizon is marked by global financial crises including the U.S. subprime mortgage crisis, the collapse of Lehman Brothers, and the European sovereign-debt crisis. We measure portfolio performance in terms of rate of return, standard deviation of returns, and Sharpe ratio. Results are compared with the following benchmarks : 1) KOSPI, 2) Samsung Group Funds, 3) Talmudic portfolio based on the nave 1/N rule, and 4) Markowitz`s model with SMA. We performed sensitivity analyses on all the input parameters that are necessary for designing an investment decision-making framework : smoothing constant for EWMA, minimum required expected return for the portfolio, and portfolio rebalancing period. In conclusion, appropriate use of the comprehensive investment decision-making framework based on the Markowitz`s model integrated with EWMA proves to achieve outstanding performance compared to the benchmarks.

hanguk gyeongyeong gwahakoeji/han'gug gyeong'yeong gwahag hoeji

Developing an Investment Framework based on Markowitz's Portfolio Selection Model Integrated with EWMA : Case Study in Korea under Global Financial Crisis