Strategy Of Portfolio Choice And Asset Allocation In Financial Market

In the investment process, the most important things are selecting securities to construct portfolio and asset allocation. Investors can avoid the non-systematic risk and match their investment risk and expected return through portfolio management as far as possible. Asset allocation is the allocation of funds to different types of assets, or to different geographical markets or to different industries and sections in one market. Accurate and reasonable asset allocation may reduce the investment risk, and ensure the completion of investment objectives.With the development of Chinese financial market, the portfolio strategy in stock market is being more rich and varied, especially after the stock index futures, margin trading and other financial instruments be created. How to pick stocks to construct portfolio, and moreover, with selling stock index futures to hedge the market risk and get the alpha return is one of the most important topic investors concerned.We discussed these issues in this paper. Paper had seven sections:Chapter 1 introduces the background and significance of this study, as well as a number of related researches at home and abroad, and describes the structure and innovation of this paper.Chapter 2 introduces the portfolio management theory and the efficient market hypothesis. Markowitz's "Mean-Variance" theory, Capital Asset Pricing Model and Arbitrage Pricing Theory constitute the the modern portfolio management theory and is the the basis of portfolio analysis. The different judgments of the efficient of the market, we can divide the investment strategy into the active investment and passive investment.Chapter 3 introduce the major compiling methods of market indices, espically the Shanghai and Shenzhen 300 Index. We also compare the fundamental index and market value weighted index, and construct a confidence index of fund investors based on survey information and objective data.For different investment strategies, chapter 4 presents a passive tracking index strategy and a contribution strategy based on financial data and market transaction data. Index tracking is the core problem in a passive investment strategy. By selecting fewer stocks based on stepwise pick variance method can achieve better tracking results, and we also compared this method with existing index tracking methods. This strategy can also be applied to the arbitrage of the stock index futures. In the second half of the fourth chapter analyzes the financial data which may impact the stock returns, and construct portfolios based on contribution.Chapter 5 presents an Alpha strategy based on the time-varying coefficient model. This strategy can construct a positive Alpha coefficient portfolio through effective selection of suitable stocks, and with selling stock index futures can get positive return in bear market. The innovation of this method is through establish a index with long-term excess returns, and then build a portfolio with excess return by tracking this index well. At the end of this chapter, we compared different size, different formation period and different holding period of the portfolio.In chapter 6 we propose an asset allocation strategy between industries of stock market. This strategy can also be extended to allocation between different asset like stocks, bonds, currencies and commodities. Based on Black-Litterman framework, we take the predicted results of industry return which modeled through macroeconomic variables as the view of investors, and the prediction accuracy (the forecast variance) reflects the degree of confidence in holding that view, and further we use the GJR -GARCH model to describe the variance of return. Through the model to capture the stock returns characteristics concisely and systematically to replace the analyst's subjective views which Black and Litterman first proposed. Finally, we tested this asset allocation strategy among industries with empirical data of Chinese stock markets. We believe that the strategy provide an effective and sustainable way for managing risk and return portfolio.The final chapter reviews the article and proposes some issues needing further research.