A Simplified Perspective of the Markowitz Portfolio Theory

Abstract

Noted economist, Harry Markowitz (“Markowitz) received a Nobel Prize for his pioneering theoretical contributions to financial economics and corporate finance. His innovative work established the underpinnings for Modern Portfolio Theory — an investment framework for the selection and construction of investment portfolios based on the maximization of expected portfolio returns and simultaneous minimization of investment risk. This paper presents a simplified perspective of Markowitz’ contributions to Modern Portfolio Theory, foregoing in-depth presentation of the complex mathematical/statistical models typically associated with discussions of this theory, and suggesting efficient computer-based ‘short-cuts’ to these performing these intricate calculations.

Keywords: Markowitz Portfolio Theory, Modern Portfolio Theory, Portfolio Investing, Investment Risk

JEL Classification: G30, G32, G11, G00, G20