Risk-Return Analysis: The Theory and Practice of Rational Investing (Volume One)

PREFACE

The present volume presents Part I of a planned four-part book on the theory and practice of risk-return analysis, particularly mean-variance analysis. This field is plagued by a Great Confusion, namely the confusion between necessary and sufficient conditions for the use of mean-variance analysis in practice. Normal (Gaussian) return distributions are sufficient to justify the use of mean-variance analysis, but they are not necessary. If you believe (as many do, including the undersigned) that rational decision making should be consistent with expected utility maximization, then the necessary and sufficient condition for the use of mean-variance analysis in practice is that a carefully selected portfolio from a mean-variance efficient ...