Research Of Optimal Investment Portfolio Strategy Based On A Share Market Liquidity

The trade off between the return and risk of investment is the main idea of modern financial research.Markowitz firstly combined these two things together in 1952, he put forward the famous portfolio investment theory.However,due to the changing of today’s financial market,more and more restrictive factors appeared in front of investors, specially market liquidity factors.The condition of Markowitz optimal portfolio theory and Markowitz efficient frontier is the financial market is complete,but many financial markets are incomplete,such as real estate market,restricted shares market and venture capital market are typical markets that contain illiquid assets.However,when some extreme events happen, we usually consider that the stock market will sink into a liquidity trouble, then some assets may be influenced by liquidity impact. For example, due to the global financial crisis in 2008, all of the world’s stock markets dropped sharply,in this case,the liquidity of the stock market will be greatly affected,because of the investors’irrational selling, sellers are much more than buyers, then the majority of the world’s stock markets unilaterally drop in this case.If the investor bought some assets that affected by the current environment, the loss must be huge. Based on this background,we should let the liquidity factors included in the optimal portfolio choice.This paper assumes that there are two types of assets in the stock market, one class of asset’s liquidity impact can be almost negligible;While the other class of asset is influenced by the market liquidity.Assuming that the equilibrium price of such assets are determined by stochastic process items of information environment and the market liquidity under equilibrium conditions, the demand and supply of the assets and Ito Lemma also express the equilibrium price of the asset. Via adjusting the return on assets, variance, sharpe ratio and other indicators of liquidity proxy variable indicators, so that it can be applied to the classic liquidity optimal portfolio framework. In this paper, we choose 10 industry index of the HuShen 300 Index as object, using BDS test to analyze whether the sequence meets the independent and identically distributed (i.i.d.) conditions, so we can conclude that whether the asset are affected by the liquidity significantly; Finally,we do an empirical research about the selected asset portfolio.The results of this study show that:in a case of better market liquidity environment, the adjusting portfolio effect is not significant;While in a case of poor liquidity market environment,the adjusting portfolio effect is very significantly and has better performance.The empirical results show that the performance of the portfolio of assets in different liquidity market environment will be split up, and therefore we must adjust the index parameter of the assets based on the liquidity conditions during the portfolio research;And when the market liquidity environment is not the same, the return of the portfolio will also have a significant difference.