The compare of fitting between Markowitz model and single index model in different risk degree

Abstract

COVID-19 outbreak impose a major threat on the economy. For such a major public event, government always take some measure to deal with them, and it will cause great impact to market. The paper tries to use 20 years of historical daily total return data for ten stocks, which belong in groups to three different sectors Internet Technology Industry, The financial industry, Consumer goods business, one (S&P 500) index (a total of eleven risky assets) and a proxy for risk-free rate (1-month Fed Funds rate). This paper will explore practical degree of MM model and IM model in different risk degree by choosing one market index and ten leading enterprises in all walks of life and try to use expect return to divide degree of risk. The research show that MM model will have better degree of fitting in medium risk degree, and IM will be more suitable for low-risk degree. Furthermore, when expect return above 40% to the high return level, the limiting condition will cause great influence.