FINANCIAL FORTUNES UNLEASHED: A GUIDE TO MAXIMIZING RETURNS IN NIGERIAN STOCKS

Abstract

This paper traces the trajectory of the Markowitz mean-variance portfolio optimization model, pioneered by Harry Markowitz in the 1950s, and explores its evolution in response to identified weaknesses and limitations. Markowitz's seminal work, "Portfolio Selection" (1952), laid the foundation for modern portfolio theory, emphasizing the importance of diversification in guiding asset selection, allocation, and portfolio weightings. However, subsequent research by scholars such as Fuerst, Norton, Ceria, Stubbs, Goldfarb, Iyengar, Jorion, Konno, Suzuki, Michaud, Bowen, Ravipti, and others has illuminated the model's shortcomings. This study delves into the efforts of researchers including Jobson, Korkie, Ratti, Frost, Savarino, Polson, Tew, Britten-Jones, Kandel, Stambaugh, Zellner, Chetty, Klein, Bawa, Brown, Huang, and Markowitz to refine and extend the Markowitz mean-variance model. Various strategies such as Bayesian approaches, predictive probabilities, and Mean-semi variance modifications have been employed to address the identified limitations and enhance the model's effectiveness. Furthermore, a distinct avenue of research integrates Random Matrix Theory (RMT) into financial markets, building on concepts introduced by Wigner (1951). Scholars such as Galluccio, Laloux, Bongini, Pafka, Kondor, Potters, Lindberg, and others have leveraged RMT to augment Markowitz's portfolio optimization, opening new avenues for improving its performance and robustness. This integration offers innovative perspectives on addressing challenges inherent in traditional mean-variance models. In conclusion, the paper synthesizes the diverse efforts to enhance the Markowitz mean-variance model, incorporating insights from Bayesian approaches, modifications to variance calculations, and the application of Random Matrix Theory. The findings shed light on the ongoing evolution of portfolio optimization techniques in response to the dynamic landscape of financial markets.