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Portfolio Theory: As I Still See It

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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.

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File URL: http://www.annualreviews.org/doi/abs/10.1146/annurev-financial-011110-134602
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Bibliographic Info

Article provided by Annual Reviews in its journal Annual Review of Financial Economics.

Volume (Year): 2 (2010)
Issue (Month): 1 (December)
Pages: 1-23

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Handle: RePEc:anr:refeco:v:2:y:2010:p:1-23

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Related research

Keywords: MPT; Friedman-Savage; prospect theory; stochastic dominance; capital asset pricing model;

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Cited by:
  1. Markowitz, Harry, 2014. "Mean–variance approximations to expected utility," European Journal of Operational Research, Elsevier, vol. 234(2), pages 346-355.
  2. Viole, Fred & Nawrocki, David, 2013. "An analysis of heterogeneous utility benchmarks in a zero return environment," International Review of Financial Analysis, Elsevier, vol. 28(C), pages 190-198.
  3. Ankit Dangi, 2013. "Financial Portfolio Optimization: Computationally guided agents to investigate, analyse and invest!?," Papers 1301.4194, arXiv.org.
  4. Peel, D.A., 2013. "Heterogeneous agents and the implications of the Markowitz model of utility for multi-prize lottery tickets," Economics Letters, Elsevier, vol. 119(3), pages 264-267.

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