Harry Markowitz’s 1952 seminal paper on modern portfolio theory contains the foundation of what seems to be the only free lunch in finance: the reduction of risk through portfolio diversification. An investor who spreads wealth among many imperfectly correlated assets will observe a decrease in the volatility of their portfolio, says Markowitz. When properly executed, there is no reduction in average return and so, apparently, no bill for the lunch.
Since Markowitz the idea of portfolio diversif
The week on Risk.net, September 8-14, 2018Receive this by email