Markowitz Efficient Set

What is the 'Markowitz Efficient Set'

The Markowitz efficient set is a set of portfolios with returns that are maximized for a given level of risk based on mean-variance portfolio construction. The efficient "solution set" to a given set of mean-variance parameters (a given riskless asset and a given risky basket of assets) can be graphed into what is called the Markowitz efficient frontier.

BREAKING DOWN 'Markowitz Efficient Set'

The Markowitz efficient set is all of the portfolios on the efficient frontier, or those that generate the largest return for a given risk level. The mean-variance and subsequent efficient set theory at one time revolutionized portfolio management, and remains a core lecture in any economist's university years. The theory of mean-variance portfolios lead to the capital asset pricing model, and is still a vital component of professional money management today.

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RELATED FAQS
  1. Why is risk return tradeoff important in designing a portfolio?

    Learn how the risk return tradeoff is used in the construction of portfolios, and how modern portfolio theory seeks to diversify ... Read Answer >>
  2. Which of the following is the most true regarding the type of assets found along ...

    The correct answer is b. The efficient frontier is comprised mainly of portfolios that contain several imperfectly correlated ... Read Answer >>
  3. Does a high efficiency ratio mean that the company is profitable?

    Understand the variety of efficiency ratios and why a high efficiency ratio does not necessarily mean a company is operating ... Read Answer >>
  4. How do investment advisors calculate how much diversification their portfolios need?

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  5. Which financial ratios are considered to be efficiency ratios?

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