Harry M. Markowitz - Risk-Return Analysis: The Theory and Practice of Rational Investing (Volume One)

Praise for Risk-Return Analysis

Harry Markowitz invented portfolio analysis and presented the theory in his famous 1952 article and 1959 book. Sixty-one years after his initial work, he is writing a four-volume series of books based on his continued development of portfolio theory and management. Nobody has greater insight into the process than Harry. In this first volume, he describes with great clarity and insight rational decision making and the key role of mean-variance analysis. Harry not only answers any questions that have been raised, but also some that havent been thought of. No academic or practitioner can truly claim to understand portfolio analysis unless they have read this volume. I eagerly await volumes 2, 3, and 4 as Harry continues to educate us all.

Martin J. Gruber, Professor Emeritus and Scholar in Residence of the Stern School of Business, New York University

How to use available historical data to quantify the rewards to long-term investing is one of the most important problems in finance. Surveying the vast literature inspired by his own 1959 book, Portfolio Selection: Efficient Diversification of Investments, has stimulated an outpouring of ideas. He builds on the strengths and limitations of the important papers in order to come up with a position that should silence a lot of critics.

Jack Treynor, President of Treynor Capital Management

Most people praise the Modern Portfolio Theory (MPT) paradigm innovated by Nobel Laureate Harry Markowitz, and a few people criticize it, but all share one thing in common: they use it intensively in their academic research and in practical investments alike. What makes the MPT so immense is the amazing optimal combination of three elements: a profound analytical base, strong intuition and a simplicity that makes it easy to implement. No wonder it is still a pillar of modern finance even after six decades since its publication, and I have no doubt it will be the center of modern finance theory for many more years to come. Volume 1 in the series thoroughly covers important investment topics and their relation to the MPT, emphasizing that the mean-variance rule can serve as an excellent approximation to expected utility in virtually all investment scenarios. The authors do not overlook various criticisms of the MPT, but rather address them convincingly. This excellent book is an essential reference to academics and practitioners alike.

Haim Levy, Dean of the School of Business, Hebrew University, Jerusalem, Israel

Harry Markowitzs ground-breaking 1952 and 1959 publications on Portfolio Selection prescribe a methodology that a rational decision-maker can follow to optimize his investment portfolio in a risky world. Risk-Return Analysis is the first installment of a four-part opus that critically reviews and summarizes the academic work on modern portfolio theory that Harry and others have published during the six decades that have followed. This challenging new book clarifies many common misconceptions about modern portfolio theory. It is a wonderful gift to the investment profession.

Roger C. Gibson, Author, Asset Allocation: Balancing Financial Risk, Chief Investment Officer, Gibson Capital, LLC

One hundred years from now, students of financial economics will begin their training by learning mean-variance analysis and portfolio optimization, thanks to the pioneering work of Harry Markowitz. Few scholars have had such impact on both theory and practice as Markowitz, and these volumes contain great wisdom that every economist, portfolio manager, and investor should savor page by page.

Andrew W. Lo, Charles E. and Susan T. Harris, Professor and Director, Laboratory for Financial Engineering MIT Sloan School of Management

Harry Markowitz is a force of nature in our field. He is like a seasonal cyclone that tears through the city of received knowledge and rearranges all the conceptual buildingsinvariably for the better.

His monumental work in the 1950s would be sufficient to qualify as a lifetime achievement for most mortals, but he keeps spouting fresh insights like lightning flashes year after year, and penetrating ever deeper into the theory, mathematics and practice of investing.

Harry Markowitz is without parallel in his intellectual honesty, his enthusiasm, and his courage to tackle the biggest intellectual challenges. He exhibits a compulsion to probe ever deeper into the fundamental mysteries of finance, even when the new findings lead to refining or even upending some of his own prior work. You would think he would occasionally take a breather, give it a brief respite, a pauseif only to allow the rest of us to catch upbut no, Markowitz is relentless in his intellectual pursuit to develop a more comprehensive understanding of all aspects of the investment process.

The current volume, Risk-Return Analysis, integrates a cornucopia of Markowitzs latest thinking, together with the authors structural overview of the current state of the field. The subtitle, The Theory and Practice of Rational Investing, really speaks to two goals. With respect to the first goal, Markowitz and Blay do indeed succeed in presenting a comprehensive theory of investing that is fresh, coherent, authoritative, and yet readable. With the second, and much more challenging goal of injecting rationality into the practice of investing, this book will at least help move the reader a long way down the right path.

Martin Leibowitz, Managing Director, Global Research Strategy, Morgan Stanley

Copyright 2014 by Harry M. Markowitz and Kenneth A. Blay. All rights reserved. Except as permitted under the United States Copyright Act of 1976, no part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written permission of the publisher.

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