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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.

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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    Citations

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    Cited by:

    1. Ankit Dangi, 2013. "Financial Portfolio Optimization: Computationally guided agents to investigate, analyse and invest!?," Papers 1301.4194, arXiv.org.
    2. Susanne Neuner & Thomas Knoke, 2017. "Economic consequences of altered survival of mixed or pure Norway spruce under a dryer and warmer climate," Climatic Change, Springer, vol. 140(3), pages 519-531, February.
    3. Markowitz, Harry, 2014. "Mean–variance approximations to expected utility," European Journal of Operational Research, Elsevier, vol. 234(2), pages 346-355.
    4. Reus, Lorenzo & Mulvey, John M., 2016. "Dynamic allocations for currency futures under switching regimes signals," European Journal of Operational Research, Elsevier, vol. 253(1), pages 85-93.
    5. 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.
    6. repec:eee:matsoc:v:87:y:2017:i:c:p:31-39 is not listed on IDEAS
    7. Dennery, Charles & Direr, Alexis, 2014. "Optimal lottery," Journal of Mathematical Economics, Elsevier, vol. 55(C), pages 15-23.
    8. 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.
    9. Knoke, Thomas & Paul, Carola & Härtl, Fabian & Castro, Luz Maria & Calvas, Baltazar & Hildebrandt, Patrick, 2015. "Optimizing agricultural land-use portfolios with scarce data—A non-stochastic model," Ecological Economics, Elsevier, vol. 120(C), pages 250-259.

    More about this item

    Keywords

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

    JEL classification:

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

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