Empirical Study Of Investment Portfolio Theory In Chinas Open-ended Funds

This paper attempts to apply the portfolio theory to China's open-ended fund market, and to judge which portfolio is feasible for predicting the securities market in China, through comparing the performance of the theoretical portfolio with that of the practical portfolio.Firstly, this paper reviews the development of portfolio theory, and discusses the single period (static state) portfolio theory in details, then it introduces Markowitz'mean—variance theory and Sharpe's single exponential model, and finally points out that the application of theoretical model on portfolio is to solve the quadratic programming problem of expectations for earnings under the minimal target risk or expectations for risks under the maximal target benefits. Meanwhile, this paper briefly introduces the research methods and results from domestic and foreign scholars in the field of portfolio.Secondly, based on the above-memtioned theories, the paper assumes that the fund invests all its capital into the top 10 stocks annually. Using the Markowits'mean—variance theory and the single exponential model of Sharpe as the theoretical basis, this paper gives an analysis of the quadratic programming problem of expectations for earnings under the minimal target risk, finally gets the optimal portfolio under the precondition of allowing short-selling or not.In empirical study, through selecting the weekly yield of Jingshun Great Wall open-ended fund from January 4, 2006 to December 31, 2006 as sample data, this paper establishes the quadratic programming model based on Markowitz model and Sharpe's single exponential model, respectively. Under the promise of allowing non-negative assumption or not, using the"solve"function in Excel to get the best portfolio, under the disallowing short-selling and or not. What's more, this paper compares the variances between the theoretical portfolio and the practical portfolio, and employs the Sharpe's Measure, Theynor's Measure and Jensen's Measure to analyze which is the best between the single exponential model of Sharpe and portfolio investment. The results show that: 1. In the selected four funds, the theoretical risk of three funds is less than that of the actual portfolio fund, and only one fund's risk is higher than that of the actual portfolio fund; 2. It's hard to determine which combination is better between the single exponential model and Markowits'model;.3. Allowing short-selling is better than disallowing short-selling and the optimal solution can not be found under the condition of disallowing short-selling.The results show that, Markowitz model and single exponential model have some significance in the China's present securities market. Besides, the enforcement of short-selling restrictions requires more efforts in the building and research of China's securities market and stock derivatives so as to promote the healthy development of the securities market.