Review of Research on Markowitz Model in Portfolios
Qi Guo · Advances in economics, business and management research/Advances in Economics, Business and Management Research · 2022
In modern portfolio theory, the Markowitz model is also known as the mean-variance model, which is the core of modern portfolio theory.The Markowitz model explains well the process of calculating the optimal portfolio solution and its principles.In addition to this, it is clear that the model also describes various situations in a portfolio by constructing the horizontal axis as the variance and the vertical axis as the mean.It is also explained in the Markowitz model that this uses the variance to represent the risk of the portfolio and the mean to represent the expected return of the portfolio.This paper aims to analyze the study of the Markowitz model in the context of investment portfolios.Through analysis, it is found that Markowitz though includes advantages like the ones just mentioned, the model may still have some disadvantages as well as limitations.For example, the model is only valid if the financial markets are strong-form efficient.Further, strong-form efficiency implies that financial markets are free from insider information and irrational investors and investment behavior.Finally, based on this model, the paper will conclude with future perspectives and related recommendations.