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Efficient frontier |
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Efficient frontierThe combinations of securities portfolios that maximize expected return for any level of expected risk, or that minimizes expected risk for any level of expected return. Pioneered by Harry Markowitz.Efficient frontier Similar MatchesEfficient market theoryEfficient market theoryThe theory that claims that the current price of a share reflects everything that is known about the company and its future earnings potential, and that is it impossible to beat the market consistently.Efficient market theory suggests that the army of analysts and fund managers in the City whose job is to actively manage superior-performing portfolios are engaged in a futile exercise because everything they find out is rapidly transmitted around the market, and share prices instantly reflect the common knowledge. In other words, no one can get one up on anyone else. And the logical extension of this is that passive funds - tracker and index funds - are the best place to park your money, because their management costs are much lower and they are mathematically structured to match the performance of their chosen index.Plenty of people disagree with efficient market theory, and their ranks include people like Warren Buffett who has consistently produced returns of over 20% on his portfolio over a 30 year period. Inefficient portfolioInefficient portfolioGroup of assets dominated by at least one other portfolio under the mean variance rule. For example, if A has both lower return and higher volatility than B, we say A is dominated by B. Efficient allocationEfficient allocationAn allocation that it is impossible unambiguously to improve upon, in the sense of producing more of one good without producing less of another. Correlation coefficientCorrelation coefficientA standardized statistical measure of the dependence of two random variables, defined as the covariance divided by the standard deviations of two variables. Information Coefficient (IC)Information Coefficient (IC)The correlation between predicted and actual stock returns, sometimes used to measure the contribution of a financial analyst. An IC of 1.0 indicates a perfect linear relationship between predicted and actual returns, while an IC of 0.0 indicates no linear relationship. Further SuggestionsEfficient marketEfficient capital market Earnings response coefficient Gini Coefficient Internally efficient market Efficient markets theory(EMT) Efficient set Efficient market Operationally efficient market Regression coefficient Coefficient of Variation Efficient diversification Minimum efficient scale Coefficient of determination |
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