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Capital Growth and the Mean-Variance Approach to Portfolio Selection

Published online by Cambridge University Press:  19 October 2009

Nils H. Hakansson
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Extract

Three main approaches to the problem of portfolio selection may be discerned in the literature. The first of these is the mean-variance approach, pioneered by Markowitz [21], [22], and Tobin [30]. The second approach is that of chance-constrained programming, apparently initiated by Naslund and Whinston [26]. The third approach, Latané [19] and Breiman [6], [7], has its origin in capital growth considerations. The purpose of this paper is to contrast the mean-variance model, by far the most well-known and most developed model of portfolio selection, with the capital growth model, undoubtedly the least known. In so doing, we shall find the mean-variance model to be severely compromised by the capital growth model in several significant respects.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 6 , Issue 1 , January 1971 , pp. 517 - 557
Copyright
Copyright © School of Business Administration, University of Washington 1971

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