An optimal portfolio mix for stable and turbulent times: A study on Philippine assets using a modified Markowitz mean-variance model for the years 1990-2000

Date of Publication


Document Type

Bachelor's Thesis

Degree Name

Bachelor of Science in Management of Financial Institutions

Subject Categories

Finance and Financial Management


Ramon V. Del Rosario College of Business


Financial Management Department


Awarded as best thesis, 2001


Executive Summary. This study is an empirical investigation of the modified Markowitz mean-variance optimization model, which aims to create optimal portfolios for stable and turbulent periods. The model was applied in the context of the Philippine asset market using monthly historical data of the return measures of domestic equities, commercial papers, foreign exchange, treasury bills, special savings deposits, and time deposits from 1990-2000.

The results show that an investor is at an advantage by adjusting his or her portfolio in periods of market turbulence by using a portfolio mix extimated from the outlier-sample rather than investing in a portfolio estimated from the full-sample. Such can be proven by a higher risk, represented by the standard deviation, of the full-sample portfolio used in a stressful environment. However, the investor faces a big trade-off when he shifts his portfolio allocation from the optimal portfolio mix estimated from the full-sample to the optimal portfolio mix estimated from the outlet-sample in a stressful environment.

To minimize the trade-off faced by an investor when changing his portfolio allocation for the different periods, three scenarios were used to embody the investor's risk aversion and the probability of occurrence of stable and turbulent periods. Three optimal portfolios were created using the empirical probability of occurrence with higher outlier risk aversion, equal probability of occurrence with equal risk aversion, and equal probability of occurrence with higher risk aversion. Such was done to address the investor's varying personalities and views on investing.

The study also provides signals for investors to determine turbulent periods by looking at the assets' correlation and returns.

To incorporate the recent government restriction on dollar investments, an optimal portfolio was created using an actual P 1 million investment. Furthermore, varying levels of exchange rates were simulated to show the monthly cash flows for each asset. Results show that as the peso depreciate, the risk of the portfolio increases when there is a restriction on the allowable dollar investments.

Contrary to the common belief that it is always safe to invest in risk-free assets such as treasury bills, the findings indicate that when the holding period is less than the asset's maturity, investing in such may not be advisable during turbulent periods. This can be supported by the decrease in the allocation of treasury bills in the resulting optimal portfolio for the same period.

The high correlation exhibited by the assets under study led the researchers to recommend the development of other assets in the market to encourage investors into investing in the country and to prevent shifts in investments from the Philippine market to foreign markets.

Abstract Format






Accession Number


Shelf Location

Archives, The Learning Commons, 12F Henry Sy Sr. Hall

Physical Description

119 leaves

This document is currently not available here.