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. What are the advantages of portfolio planning with the efficient frontier?

    Learn about modern portfolio theory and the efficient frontier. Understand the advantages of portfolio planning with the ... Read Answer >>
  2. How have portfolios from within the efficient frontier performed historically?

    Explore how the efficient frontier is used in selecting investment portfolios. Find out how risks and returns are used to ... Read Answer >>
  3. Why is risk return tradeoff important in designing a portfolio?

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  4. How is portfolio variance reduced in Modern Portfolio Theory?

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  5. 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 >>
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