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Portfolio Analysis in a Stable Paretian Market

  • Eugene F. Fama

    (University of Chicago)

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    Recently evidence has come forth which suggests that empirical probability distributions of returns on securities conform better to stable Paretian distributions with infinite variances than to the normal distribution. Using a generalized form of a technique proposed by Sharpe [17] in a recent issue of this journal, this article develops a portfolio analysis model for a stable Paretian market. The article also shows the range of conditions under which diversification is a meaningful economic activity, even though probability distributions of returns on individual securities have infinite variances.

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    File URL: http://dx.doi.org/10.1287/mnsc.11.3.404
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    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 11 (1965)
    Issue (Month): 3 (January)
    Pages: 404-419

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    Handle: RePEc:inm:ormnsc:v:11:y:1965:i:3:p:404-419
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