Modeling Exchange Traded Funds Portfolio using Optimization Model

In recent years Exchange Traded Funds has emerged as an important investment alternative that combines both the low risk and high liquidity advantages. The construction and active management of ETFs are the central issues for the exploitation of its potential. This paper conducts the empirical studies, using the Markowitz portfolio optimization model, to construct an optimal ETF portfolio in the emerging markets. We found that the portfolio performance improves with the proposed approach against the benchmark market indexes. The performance is sensitive to the optimization criteria chosen and optimization parameters used.