[01] Lam Weng Siew, Department of Physical and Mathematical Science, Faculty of Science, Universiti Tunku Abdul Rahman, Kampar Campus, Kampar, Perak, Malaysia. [02] Lam Weng Hoe, Centre for Mathematical Sciences, Centre for Business and Management, Universiti Tunku Abdul Rahman, Kampar Campus, Kampar, Perak, Malaysia.

The mean-lower partial moment model has been proposed in portfolio optimization to minimize the portfolio risk. This model employs mean as the return measure and lower partial moment as the risk measure. Lower partial moment is a downside risk measure in portfolio optimization. The investors will be able to minimize the portfolio risk in their investment by using the mean-lower partial moment model. The objective of this paper is to construct the optimal portfolio using the mean-lower partial moment model with the degree set as 1, 2 and 3. The data of this study comprises weekly return of 20 component stocks of FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBMKLCI) in Malaysia stock market. In particular, the results of this study show that MAXIS is the largest component stock in the optimal portfolio of the mean-lower partial moment model with degree 1, 2 and 3. Besides that, the optimal portfolio of the mean-lower partial moment model with degree 2 gives the portfolio mean return at 0.0010 and portfolio risk at 0.0001. This study is significant because the investor can achieve the target rate of return with minimum portfolio risk.

Mean Return, Risk, Semi Variance, Optimal Portfolio, Portfolio Performance

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