Investment portfolio formation in global stock market, based on Black – Litterman method

Abstract

The article analyses Black – Litterman optimal portfolio theory and it’s practical application. Based on the analysis of literature, Black – Litterman theory defined and compared to H. Markowitz theory, excreted main advantages and disadvantages of BL theory. The analityical hierarchical process (AHP) determines the weights of the selected financial ratios. By using TOPSIS multi – criteria method, among the ten largest companies in the “OMX Nordic 40” index: “OMX Nordic 40” indekse: “Volvo”, “Assa”, “Sandvik”, “Neste”, “Investor”, “SEB”, “Atlas”, “Novo Nordisk”, “Vestas wind systems”, and “Nordea”, five most promising companies equities are selected for investment. Based on the obtained results, the optimal investment portfolio is formed according to Black – Litterman and H. Markowitz models, results of the portfolio are evalueated and compared with each other.