Markowitz Harry, Blay Kenneth. Risk-Return Analysis: The Theory and Practice of Rational Investing, Volume I

McGraw-Hill, 2014. — 270 p.The present volume presents Part I of a planned four-part book on the theory and practice of risk-return analysis, particularly mean-variance analysis. This fi eld is plagued by a Great Confusion, namely the confusion between necessary and suffi cient conditions for the use of mean-variance analysis in practice. Normal (Gaussian) return distributions are suffi cient to justify the use of mean-variance analysis, but they are not necessary. If you believe (as many do, including the undersigned) that rational decision making should be consistent with expected utility maximization, then the necessary and suffi cient condition for the use of mean-variance analysis in practice is that a carefully selected portfolio from a mean variance efficient set will approximately maximize expected utility for a wide variety of concave (risk-averse) utility functions. This was the argument for mean-variance analysis I presented in Markowitz (1959).The first of the following two sections of this preface briefl y reviews the fundamental assumptions of Markowitz (1959), of which the maximization of single-period expected utility is a part. The second section relates these fundamental assumptions to the contents of the present book, including the present volume and the plans for Parts II, III, and IV.