Modern portfolio theories’ (MPTs)

Modern portfolio theories’ (MPTs) currency is high in academia and among business students, but has enjoyed a lukewarm reception in the investment community. In this article, Drobetz (2001) delivers a brilliant lesson as to why the Black-Litterman approach to portfolio optimization trumps standard portfolio theory.

  • Identify and analyze the deficiencies in standard portfolio theory.
  • Of the five alternatives to computing the variance-covariance matrix, which alternative is most appropriate for your model?
  • Why?
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