PORTFOLIO OPTIMIZATION USING MARKOWITZ MODEL: AN APPLICATION TO THE BUCHAREST STOCK EXCHANGE

The Bucharest Stock Exchange, with all its economical, social and political problems and sudden ups and downs, is a good reflection of the transition period that emerging economy is currently undergoing. This study focuses on the use of an appropriate methodology for constructing efficient stock portfolios in an extremely unstable market that makes the trade-off between risk and return even more difficult to achieve. The objective is set in order to assess the market behavior: employing the Markowitz model, to construct a set of optimum portfolios under a number of varying constraints and to compare them with the market portfolio. The results obtained are presented in the chapter along with a discussion of the main problems encountered due to the particular features of a stock market in a state of transition.