PERFORMANCE TEST OF MODERN PORTFOLIO THEORY ACROSS DIFFERENT MARKETS

• Main Author: Beta Budiman, Nathanael
• Format: Theses
• Language: Indonesia
• Subjects: Manajemen umum
• Online Access: https://digilib.itb.ac.id/gdl/view/87784
• Institution: Institut Teknologi Bandung

This study aims to test the practical applicability of the Modern Portfolio Theory (MPT) by doing backtesting using 20 years of historical data (2004-2023). The optimum portfolio derived from mean-variance analysis is compared with other weighting methods: equal weights, market-cap weighted, and random weights. This study tests the performance at 6 different markets (US, UK, Japan, India, Saudi Arabia, and Indonesia), to check whether the applicability of mean-variance analysis is dependent on the size of the market. This study reveals that the efficiency of mean-variance analysis is performing better in larger and more mature market. There is a strong negative correlation between the MPT portfolio performance with the size of the market. In larger markets like US, UK, and India, MPT portfolio shows superior performance compared with other methods. But for smaller market, MPT portfolio doesn’t perform well compared to other weighting methods, even in Saudi Arabia market, MPT portfolio shows a significant underperformance compared with other weighting methods.