Portfolio Diversification



School: Yale University

Lecture Title: Portfolio Diversification

Lecture Summary:

In this lecture, Professor Shiller introduces mean-variance portfolio analysis, as originally outlined by Harry Markowitz, and the capital asset pricing model (CAPM) that has been the cornerstone of modern financial theory. Professor Shiller commences with the history of the first publicly traded company, The United East India Company, founded in 1602.

Incorporating also the more recent history of stock markets all over the world, he elaborates on the puzzling size of the equity premium. very high historical return of stock market investments. After introducing the notion of an Efficient Portfolio Frontier, he covers the concept of the Tangency Portfolio, which leads him to the Mutual Fund Theorem. Finally, the consideration of equilibrium in the stock market leads him to the Capital Asset Pricing Model, which emphasizes market risk as the determinant of a stock’s return.
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2 thoughts on “Portfolio Diversification”
Latala S

April 23, 2015

Nice post. The principles are clear. Much better explained than my professor did.

Plaisted B

January 21, 2016

I agree. It couldn’t figure out the crux of why/how diversification is so important to the client aside from risk. But it is illustrated well in this lecture.

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October 30, 2019

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