Simple Rules for Optimal Portfolio Selection: The Multi Group Case

The inception of modern portfolio theory dates from Markowitz's pioneering article [7] and subsequent book [8]. Yet despite the early development of a full theory of portfolio management, this theory has rarely been implemented. One problem arises from the difficulty in generating inputs to the general portfolio model. Index models and simple structures for correlation relationships, which go a long way towards solving this problem, have been developed. Yet the time and cost of solving actual portfolio problems (involving the solution of a quadratic programming problem) and more importantly the difficulty of educating portfolio managers to relate to risk return trade-offs in terms of covariances has virtually brought the application of portfolio theory to a halt.