Financial portfolio approach to optimal tourist market mixes

Abstract This study applied a financial portfolio theory to estimate optimal market mixes to minimize the instability of inbound tourist market demand. An empirical analysis was applied to inbound tourists to Taiwan. The results shed light on diversification in tourism market and offer tourism authorities and policy-makers explicit guidelines for risk management in the destination planning process. Specifically, using optimal mixes with various return/risk options can facilitate a more stable pattern of arrivals from foreign countries. To achieve the Doubling Tourist Arrivals Plan, introduced by the Taiwanese government in 2002, the tourism authorities should take the high-return/high-risk option and shift available resources to Japan. More policy implications are provided to guide tourism authorities and policy makers.