  The main purpose of this study is the determination of the optimal length of
the historical data for the estimation of statistical parameters in Markowitz
Portfolio Optimization. We present a trading simulation using Markowitz method,
for a portfolio consisting of foreign currency exchange rates and selected
assets from the Istanbul Stock Exchange ISE 30, over the period 2001-2009. In
the simulation, the expected returns and the covariance matrix are computed
from historical data observed for past n days and the target returns are chosen
as multiples of the return of the market index. The trading strategy is to buy
a stock if the simulation resulted in a feasible solution and sell the stock
after exactly m days, independently from the market conditions. The actual
returns are computed for n and m being equal to 21, 42, 63, 84 and 105 days and
we have seen that the best return is obtained when the observation period is 2
or 3 times the investment period.
