Applicability of H. Markowitz model to Baltic stock exchange

Abstract

The analytical solution of H. Markowitz problem in case of five assets was obtained. The minimal variance set for five of most liquid stocks on Baltic stock exchange was determined. It was checked if actual portfolio of these five assets comply with minimum variance set. It appeared that actual portfolio seems to be located on the minimum variance set. Moreover, the actual portfolio is close to global minimum variance point. That indicates that investors behave in conservative manner – they prefer to invest at minimal risk, i.e., they construct the portfolio with minimal variance of the portfolio returns. The authors attempt to perform similar analysis with Baltic stock exchange indices as well as involve more assets into investigation.