A Meta-Analysis of the Effectiveness of Mean-Variance and Single-Index Models in Portfolio Optimization

K. Yavuzaslan, Nazmiye Çabak, Gökhan Aksu

Abstract

The Mean-Variance (MV) Model and the Single-Index (SI) Model are core theories that play a significant role in financial portfolio management, with numerous studies contrasting these models in terms of their risk and return estimation performance. Due to conflicting conclusions in primary studies, both the Markowitz Portfolio Theory via the MV model and the SI model introduced by Sharpe (1964) are considered effective for portfolio optimization. The study aims to compare the MV Model and the SI by using Meta-Analysis. The meta-analysis method is used to reach an overall conclusion and to investigate which model is more useful based on all the studies of portfolio optimization analysis conducted on 48 studies examining portfolio optimization comparisons of the MV and the SI models. The empirical results confirm that there is no reason to compare the MV and SI models. The study provides the significance of integrating financial heterogeneity among investments into portfolio optimization frameworks.

Source: semanticscholar · PDF

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