5 Assumptions of the Markowitz Portfolio Theory

1. Investors consider each investment alternative as being represented by a probability distribution of expected returns over some holding period.
2. Investors maximize one-period expected utility and their utility curves demonstrate diminishing marginal utility of wealth.
3. Investors estimate risk on basis of variability of expected returns.
4. Investors base decisions solely on expected return and risk.
5. Investors prefer higher returns to lower risk and lower risk for the same level of return.