Applied Research, Portfolio Theory And Its Performance Evaluation Model

The idea of dispersing investment is widely known, but it is plain before the naissance of Markowitz portfolio theory, which demonstrates how to use dispersing investment to eliminate risks. Therefore in many investors, especially in investment institutions such as funds, banks, insurance companies and so on, the theory is applied widely. To abstract more small investors' bankroll, the investment institutions must improve their performance. Generally, they utilize portfolio to eliminate risks but not to reduce proceeds. Contrarily, other investors must consider how to evaluate the performance of investment institutions. This paper aims to answer the two questions.The main content of this paper is about the application of Markowitz portfolio theory and its performance evaluation models in Chinese security market. Firstly, the paper studies the applicability of Markowitz Mean-Variance portfolio theory in Chinese security market. Then the validity of three classical portfolio performance evaluation models is analyzed. The researches above are done under some different conditions, such as allowed short sale and unallowed short sale. Finally a conclusion is drawn that Markowitz portfolio theory and its performance evaluation models can't be applied in Chinese security market efficiently despite the idea of them is right. The main reason is the distemperedness of Chinese security market in which many hypothetic conditions of the theory are too difficult to meet.