Asset Class Portfolios Methodology
More than half a century has passed since Markowitz introduced the Nobel Prize-winning theory of optimal portfolio allocation in the mean-variance framework.
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More than half a century has passed since Markowitz (1952, 1959) introduced the Nobel Prize-winning theory of optimal portfolio allocation in the mean-variance framework that was later dubbed Modern Portfolio Theory (MPT). Markowitz’s approach to the computation of an optimal portfolio is very elegant and, given the computational constraints at the time, analytically accessible.
Despite its academic success, PMC believes the use of MPT in the finance industry is limited. When in fact used, typically either a large set of constraints is applied or some type of methodological improvement (see below) is employed. The reason for this has to do with the extreme fluctuations of MPT optimal portfolios over time and across the risk spectrum.
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