GLOBAL JOURNALElectronic copy available at: http://ssrn.com/abstract=2147880
GLOBAL JOURNAL OF BUSINESS RESEARCH ♦ VOLUME 7 ♦ NUMBER 1 ♦ 2013
A SIMPLIFIED PERSPECTIVE OF THE MARKOWITZ
Myles E. Mangram, SMC University, Switzerland
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.
JEL: G30, G32, G11, G00, G20
KEYWORDS: Markowitz Portfolio Theory, Modern Portfolio Theory, Portfolio Investing, Investment
arry Markowitz (“Markowitz”) is highly regarded as a pioneer for his theoretical contributions to
financial economics and corporate finance. In 1990, Markowitz shared a Nobel Prize for his
contributions to these fields, espoused in his “Portfolio Selection” (1952) essay first published in
The Journal of Finance, and more extensively in his book, “Portfolio Selection: Efficient Diversification
(1959). His groundbreaking work formed the foundation of what is now popularly known as ‘Modern
Portfolio Theory’ (MPT). The foundation for this theory was substantially later expanded upon by
Markowitz’ fellow Nobel Prize co-winner, William Sharpe, who is widely known for his 1964 Capital
Asset Pricing Model work on the theory of financial asset price formation.
The problem, with respect to MPT, is that the majority of investigations of the topic focus on the highly
complex statistics-based mathematical modeling and formulas which support the concept’s theoretical
assumptions. Typically, these investigations present their findings utilizing unnecessarily complicated
rhetoric and intricate formulaic expressions. In opposite, the less complicated treatments are generally
overly simplified, non-comprehensive, and lack the rigor requisite of serious scholars and practitioners.
In response to the above issues, this analysis focuses on Markowtiz’ contributions to MPT in context of
the theoretical and technological advances that have occurred since his theory first came to light in 1952.
Since then, the field of financial investing has undergone major evolutions that include significant
advances in the financial concepts and tools available to investors and investment professionals. While a
substantial part of MPT is devoted to statistics-based mathematical modeling
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