Assumptions about Investor Behavior underlying Markowitz model

• Returns distribution. Every investment opportunity has a probability distribution that describes the expected return over the investment horizon.


• Risk and Return describes completely investment decisions.


• Risk represented by variability


• Utility maximization. Investment indifference curves are convex, i.e. their marginal utility of wealth is diminishing over time.


• Risk aversion. Lower risk is preferable than higher one holding expected return constant.