Research On Portfolio Construction for Information Technology and Communication Service Industries Based on The Monte Carlo Simulation

Abstract

Attention is paid to the portfolio construction of the information technology and the communication services industries affected by the Covid-19. Firstly, the representative stocks which cover the most varieties of different market values are selected and the preliminary analysis for return performance is performed. Then, the event-study methodology is used to explore the effect of Covid-19 on the stocks chosen by this paper. The Monte Carlo simulation is also used to do the portfolio optimization. In the process of research, the Monte Carlo simulation and event study method are mainly used. Through the former one, the efficient frontier is obtained. Besides, this research also get the minimum volatility portfolio, where AT&T has the largest share of 16.33%, and the maximum Sharpe ratio portfolio, where ZOOM has the largest share of 18.79%. Then through the results of event-study, it is found that most companies generated negative abnormal returns on event date and had negative cumulative returns during the post-event window. Finally, the back test is done by comparing our portfolio with the equal weighted portfolio and NASDAQ index, and our work performs better both in the return and the risk. The results in this paper benefit the investors in the technology and communication service industries, which is especially helpful for them to do invest decision after COVID-19.