OPTIMIZING THE PORTFOLIO OF ASSETS, ACCORDING TO THE MARKOWITZ MODEL

Dan Armeanu () and Andreea Negru
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Andreea Negru: Academy of Economic Studies Bucharest

Internal Auditing and Risk Management, 2011, vol. 30, issue 2(22), 8-14

Abstract: One can argue – with a degree of certainty – that finance experts had long realised that the decision to invest needed to take into account both the profitability and the risk associated with the assets, but that used to be done mostly at an empirical level. The major contribution of professor H. Markowitz was that he was the first to put forward a concrete model for optimizing the selection of assets for investment portfolios under uncertain circumstances. More specifically, Markowitz showed how efficient portfolios (those that maximize expected profitability at a given risk level) can be put together, even when they consist only of riscky assets. The simplicity and the elegance of his result, as well as the high degree of practical applicability made it a very popular model, a true landmark in modern finances. In fact, H. Markowitz was awarded the Nobel Prize for economy in 1990, along with M. Miller and W. Sharpe.

Keywords: Efficient portfolio; profitability; risk; volatility; optimum; variance (search for similar items in EconPapers)
JEL-codes: G11 (search for similar items in EconPapers)
Date: 2011
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