Original scientific paper

A COMPARISON OF BASIC AND EXTENDED MARKOWITZ MODEL ON CROATIAN CAPITAL MARKET

Bruna Škarica ; Faculty of Economics and Business, University of Zagreb, Zagreb, Croatia
Zrinka Lukač orcid.org/0000-0003-2986-6345 ; Faculty of Economics and Business, University of Zagreb, Zagreb, Croatia

Abstract

Markowitz' mean - variance model for portfolio selection, first introduced in H.M. Markowitz' 1952 article, is one of the best known models in finance. However, the Markowitz model is based on many
assumptions about financial markets and investors, which do not coincide with the real world. One of these assumptions is that there are no taxes or transaction costs, when in reality all financial products
are subject to both taxes and transaction costs – such as brokerage fees. In this paper, we consider an extension of the standard portfolio problem which includes transaction costs that arise when constructing an investment portfolio. Finally, we compare both the extension of the Markowitz' model, including transaction costs, and the basic model on the example of the Croatian capital market.

Keywords

portfolio optimization; Markowitz model; expected return and risk; transaction costs

Hrčak ID:

96823

URI

https://hrcak.srce.hr/96823

Publication date:

30.12.2012.

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