MEAN-VARIANCE PORTFOLIO OPTIMIZATION:
A GLOBAL EQUITY APPROACH FOR THE AMERICAN INVESTOR
Open Access
Author:
Baccash, Nicholas G.
Area of Honors:
Finance
Degree:
Bachelor of Science
Document Type:
Thesis
Thesis Supervisors:
Timothy T Simin, Thesis Supervisor Timothy T Simin, Thesis Supervisor James Alan Miles, Thesis Honors Advisor
Keywords:
Finance Investing Markowitz Sharpe Ratio International Equity Emerging Markets
Abstract:
Investing in international equity has become a popular and effective way to achieve portfolio diversification, yet the average American investor still does not take full advantage of the diversification power that international equity offers. I use Markowitz modern portfolio theory to construct a mean-variance portfolio optimization model to quantify the diversification benefits of adding international equity to a domestic stock portfolio. I find that combining international equity with United States equity results in more efficient portfolios than investing in the United States equity market alone. The diversification benefit is most pronounced when adding emerging market equity to United States equity.
