Comparison of Markowitz and Sharpe Approaches to Optimal Portfolio Construction: Evidence from Emerging Market Economy

Markowitz approach and Sharpe single index model are the prominent approaches to construct optimal portfolios. The number of inputs and the computational complexity of quadratic optimization in Markowitz approach are the problems that require a lot of time and energy. To overcome these problems, Sharpe proposed a model that required fewer inputs and computational simplicity. The most important issue is whether the results of this simplified model are similar to those obtained by Markowitz model. In this study, performances of portfolios constructed using two approaches are evaluated in the Indian context. The results show that there is no significant difference between the two approaches.