Portfolio Selection Theory

Discipline: Economics

Analysis of asset selection which maximizes the return and minimizes risk for an investor. An early pioneer in this field was American economist HARRY MARKOWITZ (1927-).

One method of portfolio selection is asset diversification, which spreads risk over a mixture of equities, government bonds, commodities, precious metals, property and currencies.

The final selection of a portfolio will be determined by available information, attitudes towards risk and the income objectives of the investor.

Also see: arbitrage pricing policy, capital asset pricing model, marginal efficiency of capital, uncertainty

Source:
H Markowitz, 'Portfolio Selection', Journal of Finance 7, 1 (March, 1952), 77-97

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