The Unreasonable Effectiveness of Portfolio Theory in Theory and Practice

Vol. 23, No. 2, 2025
Andrew W. Lo

As one of the founding fathers of modern finance, Harry M. Markowitz changed the way financial economists think about financial markets and institutions, and transformed the practice of finance from art to science. To honor his memory, I provide three specific examples of how portfolio theory played central roles in my own research, one involving the Adaptive Markets Hypothesis and two related to practical applications in biomedicine and fusion energy. These examples convinced me of the “unreasonable effectiveness”—to borrow a phrase from the great physicist Eugene Wigner—of portfolio theory in theory and practice.