Mean-variance investment strategy applied in emerging financial markets: evidence from the Colombian stock market

Copyright 2015, Mykolas Romeris University. Production and hosting by Elsevier B.V. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/). In any investment, an analysis of the expected return and the assumed risk constitutes a fundamental step. Investing in financial assets is no exception. Since the portfolio selection theory was proposed by Markowitz in 1952, this methodology has become the benchmark in portfolio management. However, it is not always possible to apply it, especially when investing in emerging financial markets, which are characterised by a scant variety of available stocks and very lowliquidity. In this paper, using the Colombian case, we will examine the challenges found by investors who want to create a portfolio using only stocks listed on a scarcely developed stock market. García García, F.; Gonzalez Bueno, JA.; Oliver Muncharaz, J. (2015). Mean-variance investment strategy applied in emerging financial markets: evidence from the Colombian stock market. Intellectual Economics. 9(1):22-29. doi:10.1016/j.intele.2015.09.003 Barak, S., & Modarres, M. (2015). Developing an approach to evaluate stocks by forecasting effective features with data mining methods. Expert Systems with Applications, 42(3), 1325-1339. doi:10.1016/j.eswa.2014.09.026 Becker, F., Gürtler, M., & Hibbeln, M. (2013). Markowitz versus Michaud: portfolio optimization strategies reconsidered. The European Journal of Finance, 21(4), 269-291. doi:10.1080/1351847x.2013.830138 Belghitar, Y., Clark, E., & Deshmukh, N. (2014). Does it pay to be ethical? Evidence from the FTSE4Good. Journal of Banking & Finance, 47, 54-62. doi:10.1016/j.jbankfin.2014.06.027 Chen, C., & Kwon, R. H. (2012). Robust portfolio selection for index tracking. Computers & Operations Research, 39(4), 829-837. doi:10.1016/j.cor.2010.08.019 Edirisinghe, N. C. P. (2013). Index-tracking optimal portfolio selection. Quantitative Finance Letters, 1(1), 16-20. doi:10.1080/21649502.2013.803789 García, F., Guijarro, F., & Moya, I. (2011). The curvature of the tracking frontier: A new criterion for the partial index tracking problem. Mathematical and Computer Modelling, 54(7-8), 1781-1784. doi:10.1016/j.mcm.2011.02.015 García, F., Guijarro, F., & Moya, I. (2013). A MULTIOBJECTIVE MODEL FOR PASSIVE PORTFOLIO MANAGEMENT: AN APPLICATION ON THE S&P 100 INDEX. Journal of Business Economics and Management, 14(4), 758-775. doi:10.3846/16111699.2012.668859 Hsu, C.