What is Quantitative Finance

This chapter examines the possibilities of utilizing the results of Grey Models (GM) in the portfolio selection. Namely, stock price prediction represents one of the most important steps in the portfolio management. Many different models and methods have been developed for this purpose over the decades. The GM models could be utilized for such purpose. However, this approach is still relatively unknown today although research in the Far East has shown that applications of GM approach have good forecasting capabilities. That is why this chapter aims to popularize the GM approach of modeling stock prices and to combine the estimation results with the portfolio performance measurement. The benefits of using GM models within the portfolio management are empirically confirmed using daily data on the stock market index CROBEX from Zagreb Stock Exchange during the period from September 2, 2019, until February 7, 2020. The GM(2,1) model is the best performing one with respect to out of sample forecasts and based on portfolio performance measures important to the investor.