The Markowitz Optimization Enigma: Is 'Optimized' Optimal?

12 Pages Posted: 31 Jan 2014 Last revised: 1 Apr 2018

Date Written: 1989


The indifference of many investment practitioners to mean-variance optimization technology, despite its theoretical appeal, is understandable in many cases. The major problem with MV optimization is its tendency to maximize the effects of errors in the input assumptions. Unconstrained MV optimization can yield results that are inferior to those of simple equal-weighting schemes.

Nevertheless, MV optimization is superior to many ad hoc techniques in terms of integration of portfolio objectives with client constraints and efficient use of information. Its practical value may be enhanced by the sophisticated adjustment of inputs and the imposition of constraints based on fundamental investment considerations and the importance of priors. The operating principle should be that, to the extent that reliable information is available, it should be included as part of the definition of the optimization procedure.

Keywords: mean-variance optimization

Suggested Citation

Michaud, Richard O., The Markowitz Optimization Enigma: Is 'Optimized' Optimal? (1989). Financial Analysts Journal, 1989, Available at SSRN: or

Richard O. Michaud (Contact Author)

New Frontier Advisors ( email )

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Boston, MA 02110
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