User:Alexkachanov/Finance/Timeline


 * 1952 Markowitz Harry Markowitz was the first to propose a modern quantitative methodology for portfolio selection. This required knowledge of assets’ volatilities and the correlation between assets. The idea was extremely elegant, resulting in novel ideas such as ‘efficiency’ and ‘market portfolios.’ In this Modern Portfolio Theory, Markowitz showed that combinations of assets could have better properties than any individual assets. What did ‘better’ mean? Markowitz quantified a portfolio’s possible future performance in terms of its expected return and its standard deviation. The latter was to be interpreted as its risk. He showed how to optimize a portfolio to give the maximum expected return for a given level of risk. Such a portfolio was said to be ‘efficient.’ The work later won Markowitz a Nobel Prize for Economics but is rarely used in practice because of the difficulty in measuring the parameters volatility, and especially correlation, and their instability.


 * 1963 Sharpe, Lintner and Mossin William Sharpe of Stanford, John Lintner of Harvard and Norwegian economist Jan Mossin independently developed a simple model for pricing risky assets. This Capital Asset Pricing Model (CAPM) also reduced the number of parameters needed for portfolio selection from those needed by Markowitz’s Modern Portfolio Theory, making asset allocation theory more practical. See Sharpe (1963), Lintner (1963) and Mossin (1963).