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Berk Günberk
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1989 · Financial Analysts Journal

The Markowitz Optimization Enigma: Is 'Optimized' Optimal?

What it asks

Michaud's finding is uncomfortable. Optimisation piles into the assets whose expected returns were estimated highest; but those estimates are already wrong. So the procedure does not correct the error, it magnifies it. The resulting portfolio is mathematically optimal and hypersensitive to noise in the inputs.

What this paper connects to

  • Argues against · 1952

    Portfolio Selection

    Optimisation amplifies estimation error in the inputs: the "optimal" portfolio is often the one carrying the most error.