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Portfolio management is the art of packaging and maintaining the proper combination of assets in order to maximize the goals and objectives of an investor, given any constraints they may have. This specific combination of assets-stocks, bonds and cash, for example is most commonly referred to as asset allocation. Several factors have contributed to the creation and widespread use of asset allocation today, with the most important being the development of Modern Portfolio Theory in the 1950s and 1960s.
In the 1950s, Harry Markowitz revolutionized portfolio theory with a series of propositions that quantitatively addressed the issue of optimal asset allocation. His basic tenets were later built upon by Fama, Jensen, Sharpe and others to become what is known today as Modern Portfolio Theory.
Classical Modern Portfolio Theory begins with Markowitz's premise...