MPT fails because we don't have an appropriate risk measure. In the real world there is no risk/reward trade-off over a wide rank of scenarios. The variance/covariance matrix is not stable. Asking people to come up with their risk tolerance without a sound way to measure risk is senseless. I think Mr. Mehrotra points this out well.
I agree that understanding variability in returns is useful for investors, but the profession has a lot of work to do in coming up with new ways to define risk. MPT is fatally flawed.
MPT fails because we don't have an appropriate risk measure. In the real world there is no risk/reward trade-off over a wide rank of scenarios. The variance/covariance matrix is not stable. Asking people to come up with their risk tolerance without a sound way to measure risk is senseless. I think Mr. Mehrotra points this out well.
I agree that understanding variability in returns is useful for investors, but the profession has a lot of work to do in coming up with new ways to define risk. MPT is fatally flawed.