An Efficient Tool in Strategic Asset Allocation: Matalab

Abstract

Diversification benefits from holding an efficient portfolio stems from portfolio risk reduction given a level of portfolio expected return. An important step in strategic asset allocation is constructing an efficient frontier. Efficient portfolio requires two major inputs which are vector of expected returns on individual assets and their variance-covariance matrix. The widely used optimizer, Microsoft Excel, has its own limitation when number of assets in the attainable set is large. Estimating two major inputs and optimization procedures in efficient frontier construction are time and computer resource consuming. This study examines asset return behavior of stocks listed in the Stock Exchange of Thailand (SET) and proposes an alternative tool for efficient portfolio construction using MATLAB. Compared with a longer historical sample period,shorter sample periods contain more number of concentrated portfolios.