China A-share Market Portfolio To Build A Comparative Study

As we all known, the study of the theory of portfolio construction in China is far behind that in the world, which is determined by a number of objective conditions. Nowadays most scholars'studies of the portfolio construction are mainly developed based on mature markets such as European and American markets. However, few scholars are interested in emerging markets such as Chinese stock market, maybe just because the lack of the data in such market.The processes of portfolio management include the risks and benefits of assets estimation, portfolio optimization and portfolio performance measurement.Among these three parts, the risks and benefits of asset assessment and optimization of the portfolio have a great theoretical significance, which is the core of portfolio management process. However, due to the different effectiveness of the different markets, for example comparing mature and developed market with emerging ones, there are many different characteristics of each. Considering those different characteristics when we decide to invest in emerging markets,we must taken into account the special nature and should not copy Europe and the United States mature the market directly.In this paper, I apply Markowitz portfolio optimization to the index constituents of SSE 50 Index of the Chinese markets. I find out that the sample error of using data from the Chinese stock market is so huge that it seriously influenced the portfolio optimization process. I also find that the equally-weighted version of SSE 50can not outperform the market-cap weighted SSE 50, contradicting to the researching results implemented in U.S.or European stock market.Another interesting finding is that GMV portfolio constructed with constant correlation variance-covariance methods can dominant SSE 50 index. My findings prove that stocks from emerging markets are distinct from stocks from developed markets and different techniques should be applied to different situations.