Markowitz Efficient Set


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.

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.

  1. Homogeneous Expectations

    An assumption in Markowitz Portfolio Theory that all investors ...
  2. Portfolio

    A grouping of financial assets such as stocks, bonds and cash ...
  3. Risk Premium

    The return in excess of the risk-free rate of return that an ...
  4. Risk-Free Asset

    An asset which has a certain future return. Treasuries (especially ...
  5. Efficient Frontier

    A set of optimal portfolios that offers the highest expected ...
  6. Capital Asset Pricing Model - CAPM

    A model that describes the relationship between risk and expected ...
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