Portfolio Optimization in the German Stock Market

The thesis focuses on the equity portfolio management with quantitative methods. We present 3 types of optimization objectives: One tries to find minimum variance portfolios, tangency portfolios and portfolios with maximized expected returns in the German stock market. It is possible to compare those investment opportunities with a market-cap weighted benchmark and an equal weighted portfolio. Expected returns of stocks are estimated with fundamental factor models. Risks of portfolios are estimated with 5 types of covariance matrices: the matrix calculated with historical returns, estimations with the single index model, Fama-French three factors model, fundamental factor model and the shrinkage method. Our results are doubled because of the demonstration of the impact of turnover constraint on portfolio performance measures (transaction costs are included in our calculations). One can see that optimized portfolios had attractive risk-return measures in the period 2005 - 2015. Benchmark and equal weighted portfolios were dominated and we consider them to be inefficient investments in our test