The Efficient Frontier is a Beautiful Lie: Why 'Optimal' Portfolios Fail in Real Markets
- Fabio Capela
- Portfolio theory , Quantitative finance , Modern portfolio theory , Risk management , Mathematical finance , Investment mathematics , Portfolio construction , Academic finance
If you’ve ever opened up an investing textbook, you’ve seen the chart. A smooth, upward-curving line — the efficient frontier — showing a perfect relationship between risk and return. All you need to do is plug in your estimates for expected returns, volatilities, and correlations, and voilà: the optimal portfolio is right there in front of you.
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