Eggs in a Basket: Harry Markowitz's Contribution and How I Achieved Erdős 3

How many times have you heard: "Don't put all your eggs in one basket"in reference to stock investments? That is Harry Markowitz's foundational contribution. Many of my research ideas were a direct result of his insights. In his famous 1952 paper, Markowitz realized that the mean-variance efficient portfolio was only optimal if there was no preference for skewness. This led to my work in the Journal of Finance, expanding the definition of risk to include skewness and estimating mean-variance-skewness efficient portfolios. The 1952 paper also assumes static probability beliefs. This inspired a line of research looking at dynamic probability beliefs with time-varying risk and expected returns. Finally, in the Markowitz framework, the expected returns, variances, and covariances are assumed to be exactly known. My work on Bayesian portfolio optimization relaxes this assumption and allows for uncertainty in the inputs. My research epitaph might read: "He was a careful reader of Harry Markowitz's footnotes."

Duke Scholars

Author Campbell R. Harvey Fuqua School of Business