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  • Thumbnail for Security return covariance forecasting and applications for multi-period mean-variance formulation
    Security return covariance forecasting and applications for multi-period mean-variance formulation by Sargent, Blair M.

    The value and importance of diversity in one's portfolio has long been postulated, but it was Harry M. Markowitz who proposed the first mathematical model that would allow investors to systematically compute the optimal allocation of assets based on individual preferences (the investor's utility function), covariance, variance, and expected value of returns. Adequate diversification can mitigate risk substantially while potentially enhancing returns. Markowitz provided investors with the tools to optimally diversify their investments.