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Adding Markowitz And Sharpe To Portfolio Investment Projects

Author

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  • Lynda S. Livingston

Abstract

Introductory investments courses revolve around Harry Markowitz’s modern portfolio theory and William Sharpe’s Capital Asset Pricing Model. Nonetheless, the textbook versions of these seminal contributions tend to obscure their economic insights, focusing instead on their mathematical consequences. In this paper, we suggest simple additions to the basic portfolio spreadsheet project that will distinguish the economics (e.g., the market portfolio is efficient) from its necessary consequences (e.g., the beta-expected return relationship is linear). We also show that it is important to use Excel’s MMULT function, not Solver, to find efficient portfolios.

Suggested Citation

  • Lynda S. Livingston, 2013. "Adding Markowitz And Sharpe To Portfolio Investment Projects," Business Education and Accreditation, The Institute for Business and Finance Research, vol. 5(2), pages 79-95.
    • Handle: RePEc:ibf:beaccr:v:5:y:2013:i:2:p:79-95
    as

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    References listed on IDEAS

    as
    1. Roll, Richard, 1977. "A critique of the asset pricing theory's tests Part I: On past and potential testability of the theory," Journal of Financial Economics, Elsevier, vol. 4(2), pages 129-176, March.
    2. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, March.
    3. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, September.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Portfolio Theory; CAPM; Investments Pedagogy;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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