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Portfolio Theory: As I Still See It

Author

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  • Harry M. Markowitz

    (Harry Markowitz Company, San Diego, California 92109)

Abstract

This essay summarizes my views on (a) the foundations of portfolio theory and its applications to current issues, such as the choice of criteria for practical risk-return analysis, and whether some form of risk-return analysis should be used in fact; (b) hypotheses about actual financial behavior, as opposed to idealized rational behavior, including two proofs of the fact that expected-utility maximizers would never prefer a multiple-prize lottery to all single-prize lotteries, as asserted in one of my 1952 papers; and (c) a simple proof of the theorem (which was initially greeted with some skepticism, especially by referees) that investors in capital asset pricing models do not get paid for bearing risk.

Suggested Citation

  • Harry M. Markowitz, 2010. "Portfolio Theory: As I Still See It," Annual Review of Financial Economics, Annual Reviews, vol. 2(1), pages 1-23, December.
    • Handle: RePEc:anr:refeco:v:2:y:2010:p:1-23
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    File URL: http://www.annualreviews.org/doi/abs/10.1146/annurev-financial-011110-134602
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    More about this item

    Keywords

    MPT; Friedman-Savage; prospect theory; stochastic dominance; capital asset pricing model;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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