One of the most important developments of modern finance is the
Capital Asset Pricing Model (CAPM) of Sharpe, Lintner and Mossin.
Although the model has been the subject of several academic papers, it is
still exposed to theoretical and empirical criticisms.
The CAPM is based on Markowitz’s (1959) mean variance analysis.
Markowitz demonstrated that rational investors would hold assets, which
offer the highest possible return for a given level of risk, or conversely assets
with the minimum level of risk for a specific level of return.