Mathematics and Statistics Journal, 1(3) March 2015, Pages: 1-3 IWNEST PUBLIHER Mathematics and Statistics Journal (ISSN: 2077-4591) Journal home page: http://www.iwnest.com/MSJ/ Corresponding Author: Lam Weng Hoe, Centre for Business and Management, Department of Physical and Mathematical Science, Faculty of Science, Universiti Tunku Abdul Rahman, Perak Campus, Jalan Universiti, Bandar Barat, 31900 Kampar, Perak. Tel: 054688888; E-mail: whlam@utar.edu.my Portfolio Optimization with Mean-Absolute Deviation Model in Malaysia Stock Market Lam Weng Hoe and Lam Weng Siew Centre for Business and Management, Department of Physical and Mathematical Science, Faculty of Science, Universiti Tunku Abdul Rahman, Perak Campus, Jalan Universiti, Bandar Barat, 31900 Kampar, Perak. ARTICLE INFO ABSTRACT Article history: Received 8 April 2015 Accepted 7 May 2015 Published 19 May 2015 Keywords: Mean return, risk, performance ratio, portfolio compositions. Background: Portfolio optimization is an important asset allocation strategy to minimize the portfolio risk. The mean-absolute deviation model has been proposed in portfolio optimization to minimize the portfolio risk at certain rate of return. The absolute deviation is used as risk measure in the mean-absolute deviation model. Objective: The objective of this paper is to construct an optimal portfolio using mean- absolute deviation model. The data of this study consists of 20 stocks in Malaysia stock market. Results: The results of this study show that the compositions of stocks in the optimal mean-absolute deviation portfolio are different. Besides that, the optimal mean- absolute deviation portfolio gives minimum portfolio risk at certain rate of return. Conclusion: The mean-absolute deviation model is applicable in Malaysia stock market to minimize the portfolio risk at certain rate of return. © 2015 IWNEST Publisher All rights reserved. To Cite This Article: Lam Weng Hoe and Lam Weng Siew., Portfolio Optimization with Mean-Absolute Deviation Model in Malaysia Stock Market. Math. Stat. J., 1(3), 1-3, 2015 INTRODUCTION Portfolio optimization is an asset allocation strategy that used to determine the weights of the assets with minimum portfolio risk at certain rate of return. The mean-absolute deviation model has been introduced by Konno and Yamazaki [1] in portfolio optimization to minimize the portfolio risk. The absolute deviation is used as risk measure and the mean return is used as expected return in the mean-absolute deviation model. The objective of this paper is to construct an optimal portfolio using mean-absolute deviation model. The optimal mean-absolute deviation portfolio will give the minimum portfolio risk at certain rate of return. The rest of the paper is organized as follow. The next section discusses about the literature review. Section 3 describes the data and methodology. Section 4 discusses about the empirical results of this study. Section 5 concludes the paper. Literature Review: The mean-absolute deviation model has been used in the past studies to construct the optimal portfolio. The mean-absolute deviation model has been applied in portfolio optimization problem in different markets such as Istanbul [2], Japan [3], Italian, French and German [4]. Data and methodology: Data: The data of this research consists of weekly return of 20 stocks in Malaysia stock market. The period of this study covers from January 2002 until June 2008. Mean-absolute Deviation Model: The mean-absolute deviation model will be applied in this study. An optimal portfolio will be constructed using the mean-absolute deviation model. The mean-absolute deviation model can be formulated as follows: Minimize       n j n j j j j j x R E x R E x w 1 1 ] [ [ ) ( ]