Harry Markowitz won the Nobel prize for his contributions to portfolio theory.
His research provided the conceptual foundation for another Nobel winning
contribution, the Capital Asset Pricing Model. However, in terms of influencing
practitioners Markowitz diversification is not widely used. One reason is
possibly due to the significant differences between identifying portfolios
that are efficient ex post (i.e., using realized returns) versus identifying
portfolios that are efficient ex ante (i.e., in an expected sense). Practitioners
and investors are interested in the latter. Part of the problem is the inability
of traditional Markowitz diversification techniques to incorporate dynamic
risk and return behavior. The objective of this lesson is to understand these
issues *plus learn how to adjust for these weaknesses* when applying
Markowitz diversification to a set of real world stocks that exhibit dynamic
risk and return behavior.

Lesson Plan