Portfolio Analysis in a Stable Paretian Market

Eugene F. Fama
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Eugene F. Fama: University of Chicago

Management Science, 1965, vol. 11, issue 3, 404-419

Abstract: 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.

Date: 1965
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:11:y:1965:i:3:p:404-419

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