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Article Summary - Finance304 Jurn Article Summary Harry...

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Finance304 Jurn Article Summary Harry Markowitz Harry Markowitz began his study on the stock market during his time in graduate school. After reading The Theory of Investment Value by John Burr Williams which explains the theory that stock prices should be a reflection of the present value of its dividends, Markowitz quickly realized that an important factor in William’s theory was missing. He noticed that future dividends could not be known for certain and extended William’s theory to represent that a stock’s value should be the expected present value of its dividend stream. However, while this theory was a step in the right direction, it was not entirely complete until Markowitz discovered the importance of risk. Before 1952, if an investor wanted to maximize the expected value of his portfolio, he would choose the stock with the highest expected return. But, Markowitz could see there was something inherently wrong with this assumption. The problem with this assumption is that it did not calculate the level of risk involved with choosing a particular stock. So, in order to accurately calculate efficient portfolios, there must be an identified level of risk with each portfolio. However, to calculate the level of portfolio
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This note was uploaded on 04/01/2011 for the course FIN 304 taught by Professor Staff during the Fall '10 term at Saginaw Valley.

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Article Summary - Finance304 Jurn Article Summary Harry...

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