Modern methods in asset allocation and portofolio management

Abstract

Various researchers proposed different approaches for asset allocation. Optimal investment portfolios were first developed by Markowitz in his Modern Portfolio Theory (MPT). Markowitz relied in some unrealistic assumptions to build his theory. We located problems using this theory in practice such as the fact that the market efficiency does not exist, the returns are not following the normal distributed function and it is one period problem. We tried to propose a model to forecast the returns in order to overtake the problems above and use the theory in practice.