A Model Challenging the 21st Century Financial Markets
7 Pages Posted: 12 Jan 2011
Date Written: January 11, 2011
Developed in the 1950s and 1960s, the core concept of the Markowitz model - the homogenous expectations assumption - is important to capital asset pricing models. The Markowitz Model uses the statistical variance of a stock's price as the measure of its risk and its expected return as the measure of its long-term prospects. It was created in 1952 by Harry Markowitz and is considered to be an optimization model for balancing the expected return and risk of a portfolio. Although more than half a century old, this model is both fresh and applicable in the contemporary financial environment.
Keywords: Capital asset pricing model, efficient frontier, expected return, dispersion of expected return
JEL Classification: G11
Suggested Citation: Suggested Citation