Markowitz Efficient Set

Dictionary Says

Definition of 'Markowitz Efficient Set'

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.
Investopedia Says

Investopedia explains '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.

Related Definitions

  • Capital Asset Pricing Model - CAPM

    A model that describes the relationship between risk and expected return and that is used in the pricing of risky securities. The general idea behind CAPM is that investors need to be ...
    Read More »
  • Harry Markowitz

    A Nobel Memorial Prize winning economist who devised the modern portfolio theory in 1952. Markowitz's theories emphasized the importance of portfolios, risk, the correlations between ...
    Read More »
  • Portfolio

    A grouping of financial assets such as stocks, bonds and cash equivalents, as well as their mutual, exchange-traded and closed-fund counterparts. Portfolios are held directly by ...
    Read More »
    • Risk Premium

      The return in excess of the risk-free rate of return that an investment is expected to yield. An asset's risk premium is a form of compensation for investors who tolerate the extra risk ...
      Read More »
    • Risk-Free Asset

      An asset which has a certain future return. Treasuries (especially T-bills) are considered to be risk-free because they are backed by the U.S. government.
      Read More »
    • Efficient Frontier

      A line created from the risk-reward graph, comprised of optimal portfolios.
      Read More »
    • Black-Litterman Model

      An asset allocation model that was developed by Fischer Black and Robert Litterman of Goldman Sachs. The Black-Litterman model is essentially a combination of two main theories of modern ...
      Read More »

Articles Of Interest

Partner Links