Wiki Wiki Web

Modern Portfolio Theory, 1950 to Date

A 1997 article by E Edwin, M Gruber that can be found here or here.

A few key points:

  • Treynor and Black or here (1973) show that for a single factor market, $X_i = \alpha_i + \beta_i M + \varepsilon_i$, the optimal weights are $w_i = \frac{\alpha_i}{\sigma(\varepsilon_i)^2}$
  • Elton and Gruber (1992) show that for a multi factor market $X_i = \alpha_i + {}^t\beta_i M + \varepsilon_i$, the optimal weights are $w =\Sigma_{\varepsilon}^{-1} \alpha$
  • Merton Intertemporal CAPM and mentions of intertemporal portfolio choice