Ch.10 · Benchmarks and Performance Evaluation · hard
What is the 'Efficient Frontier' concept in portfolio management?
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EXPLANATION
The Efficient Frontier (from Modern Portfolio Theory by Markowitz) represents the set of portfolios that are optimal — no other portfolio offers higher return for the same risk or lower risk for the same return. Portfolios below the frontier are sub-optimal (more risk than necessary for the return). This framework underpins the concept of diversification and asset allocation.
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