Mean-variance efficiency: Difference between revisions
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The mean-variance efficiency criterion says that rational investors should always prefer greater average returns and lower risk (measured by lower variances) of returns. | The mean-variance efficiency criterion says that rational investors should always prefer greater average returns and lower risk (measured by lower variances) of returns. | ||
So that, given the choice, we should - and will in theory - always prefer investment portfolios that: | So that, given the choice, we should - and will in theory - always prefer investment portfolios that: | ||
- Maximise the mean return for any given variance; or | - Maximise the mean return for any given variance; or | ||
- Minimise the variance of returns for any given mean. | - Minimise the variance of returns for any given mean. | ||
== See also == | == See also == | ||
* [[Mean]] | * [[Mean]] | ||
* [[Variance]] | * [[Variance]] | ||
[[Category:The_business_context]] | |||
[[Category:Identify_and_assess_risks]] | |||
[[Category:Risk_frameworks]] | |||
Latest revision as of 07:26, 29 June 2022
The mean-variance efficiency criterion says that rational investors should always prefer greater average returns and lower risk (measured by lower variances) of returns.
So that, given the choice, we should - and will in theory - always prefer investment portfolios that:
- Maximise the mean return for any given variance; or
- Minimise the variance of returns for any given mean.
