Long-term General Asset Allocation for individual investors in Chinese securities market

Pei Wei

doi:10.54691/bcpbm.v20i.1120

Authors

Pei Wei

DOI:

https://doi.org/10.54691/bcpbm.v20i.1120

Keywords:

Asset Allocation; Mean-Variance Model; Quantitative Investment; Sharpe Ratio.

Abstract

Facing the boom of online transaction applications in Chinese securities market, individual investors in China vacillate between different assets while allocating assets. On account of the individual investors’ inferior ability to take risk, portfolio will be their best choices. However due to their unacquaintance to modern portfolio theory, individual investors need some instructions. As proved by Brinson in 1986, over 90% of the success of a portfolio owe to general asset selection. Hence, this paper primarily focused on providing suggestions to individual investors on general asset selection to help them to construct a portfolio in China securities market at present. Initially, this paper utilized the Mean-Variance model and CML approach to depict the market and analyzed the long-term asset allocation of multi-asset for individual investors. Based on the results, this paper suggested that individual investors should focus more on bond asset: with a portfolio of 97.37% of bond asset and 2.63% of stock asset, investors will be able to acquire a yield of 4.54% (annualized). And through this study, this paper found that Chinese securities market is not mature enough and teemed with regulations, making it to be competent than other mature market.

Downloads

Download data is not yet available.

References

G. P.Brinson, J. J.Diermeier, & G. G. Schlarbaum (1986). A composite portfolio benchmark for pension plans. Financial Analysts Journal, 42(2), 15-24.

G. P. Brinson, L. R. Hood, & G. L. Beebower (1986). Determinants of portfolio performance. Financial Analysts Journal, 42(4), 39-44.

R. G. Ibbotson, & P. D. Kaplan (2000). Does asset allocation policy explain 40, 90, or 100 percent of performance? . Financial Analysts Journal, 56(1), 26-33.

H. Markowitz (1952). Portfolio selection. Journal of Finance 7(1):77-91.

H. Markowitz (1956). The optimization of a quadratic function subject to linear constraints. Naval Research Logistics Quarterly 3(1-2):111-133

GUO Shuhua & FU Qinghu (2003). An Empirical Test of the Efficient Frontier in China’s Stock Market. THINKING,29(1):23-28.

ZHANG Xueyong & ZHANG Lin (2017). A Study of the General Asset Allocation Theory. Economic Perspectives. 02(2017):137-147.

F. J. Fabozzi, F. Gupta, & H. M. Markowitz (2002). The legacy of modern portfolio theory. The journal of investing, 11(3), 7-22.

J. Lintner (1975). The valuation of risk assets and the selection of risky investments in stock portfolios and capital budgets. In Stochastic optimization models in finance (pp. 131-155). Academic Press.

M. Focardi and F.J. Fabozzi, The Mathematics of Financial Modeling and Investment Management (Hoboken, NJ: John Wiley &Sons,2004).