What is a Markowitz efficient portfolio?
A Markowitz efficient portfolio is the vector of weights Xm that minimizes the variance dm2 of the total return from the portfolio, subject to the condition that the portfolio mean premium return ,Um has a certain value.
How is optimum portfolio selected under Markowitz?
Investors will opt for the portfolio that best corresponds to their risk attitude. Those who are more risk inclined will select the portfolio on the efficient frontier, closer to point X, whereas the more risk averse will select the portfolio closer to point Y.
What is Markowitz efficient frontier?
Markowitz efficient frontier. The graphical depiction of the Markowitz efficient set of portfolios representing the boundary of the set of feasible portfolios that have the maximum return for a given level of risk. Any portfolios above the frontier cannot be achieved.
What is a dominant portfolio?
Dominant assets are called efficient portfolios whether they contain two or more assets. An efficient portfolio is thus any set or combination of assets that has the maximum expected return in its risk class and/or the minimum risk at the given level of expected return.
What is dominance and how does it apply to the efficient frontier?
The dominance principle states: Among investments with the same rate of return, the one with the least risk is most desirable. In addition, given a group of investments with the same level of risk, the one with the highest return is most desirable.
What is dominant portfolio?
What is a dominated portfolio?
Dominated Portfolio A portfolio is said to be dominated, if there is atleast one portfolio that has higher return and lower standard deviation. In other words, a portfolio is dominated if there is any other portfolio to its north-west.
What is efficient frontier in portfolio management?
The efficient frontier is the set of optimal portfolios that offer the highest expected return for a defined level of risk or the lowest risk for a given level of expected return. Portfolios that lie below the efficient frontier are sub-optimal because they do not provide enough return for the level of risk.