Application of GARCH and mean-variance model in the U.S. financial market
DOI:
https://doi.org/10.54691/bcpbm.v30i.2445Keywords:
Portfolio, GARCH, Forecasting, Comparison.Abstract
How to obtain a high return and face the low-risk investment is a hot topic widely discussed among investors. However, the specific method of targeting the optimal portfolio requires sophisticated mathematical computations. By research, some scholars found that the theory of portfolio helps investors to get a higher return and reduce investment risk. Thus, the aim of this paper is to collect and optimize a selected portfolio—Apple, Google, Netflix, Tesla, and Walmart—by GARCH model and Sharpe ratio, based on the mean returns and correlation matrix, among which Google and Apple are strongly positively correlated to each other, while Walmart, Tesla, and Netflix are weakly positively correlated. The price return of GARCH volatility of each equity shows the stock returns will go down in the next 7 days. We compare the optimal portfolio with NASDAQ composite to find the superiority of our model.
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