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Transcript of Harry Markowitz
Family owned a small grocery store
Though we release a ball a thousand times, and each time, it falls to the floor, we do not have a necessary proof that it will fall the thousand-and-first time
- David Hume
Childhood Read John Burr Williams' Theory of Investment Value
--> value of a stock should be the discounted value of future dividends
"All the eggs should not be placed in the same basket"
--> Investors diversify because they are concerned with risk as well as return
Portfolio Selection, March 1952, The Journal of Finance
Italian mathematician Bruno de Finetti on mean-variance optimization. The Italian version of the paper was published in 1940, 12 years before Markowitz's famous paper
"He gets a gold star for posing the problem, and I get a gold star for solving it." Develop Modern Portfolio Theory Modern Portfolio Theory I Attended University of Chicago for B.A. and PHD degrees
Student member of Cowles Commission for Research in Economics
Studied under Milton Friedman, T Koopmans, Jacob Marschak (thesis advisor) and Leonard Savage Education 1990 Nobel Prize in Economic Sciences
Harry Markowitz, William Sharpe, and Merton Miller shared the Nobel Prize “for their pioneering work in the theory of financial economics.”
Their contributions, in fact, were what started financial economics as a separate field of study. Basic Assumptions:
An investor either maximizes his portfolio return for a given level of risk or maximum return for minimum risk
An investor is risk averse and rational in nature Modern Portfolio Theory II The investor's optimal portfolio is found at the point of tangency of the efficient frontier with the indifference curve.