Harry Markowitz received the Nobel Prize for Economics in 1990, along with William Sharp and Merton Miller, for their contributions to financial economics. In the 1950s Markowitz developed the Modern Portfolio Theory, which illustrates how investment risks in the financial market can have a maximized return. In 1952, Markowitz published his article “Portfolio Selection,” which explains his theory. Markowitz utilized mathematics and computer methods applied to realistic problems, such as uncertainty in business decisions. In 1989, he was awarded the Von Neumann Prize in Operations Research Theory by the Operations Research Society of America and The Institute of Management Sciences.

A Markowitz Efficient Portfolio is one where no added diversification can lower the portfolio’s risk for a given return expectation (alternately, no additional expected return can be gained without increasing the risk of the portfolio). The Markowitz Efficient Frontier is the set of all portfolios that will give you the highest expected return for each given level of risk. These concepts of efficiency were essential to the development of the Capital Asset Pricing Model.