I am reading Harry Markowitz’s “ Portfolio Selection ” ( Journal of Finance , 1952), and I cannot determine whether Figure 4 contains a labeling error or whether I am misunderstanding the paper. On PDF page 11 (journal page 86), Figure 4 shows a three-dimensional coordinate system with axes , , and , together with three lines labeled , , and . On the following page, Markowitz explains Figure 4 in footnote 10: The attainable set is represented, in three-space, by the tetrahedron... Let be the subspace consisting of all points with ... For each subspace , we can define a critical line ... If a point is in and is efficient, it must be on . My understanding is that each -line represents the efficient set within the corresponding subspace, and that its subscripts identify the securities that may have nonzero portfolio weights. If that interpretation is correct, should lie on the face where , because only securities 1, 2, and 4 are included. In Figure 4, however, appears to lie on the “floor” of the tetrahedron, where and , , and may be nonzero. That face would therefore seem to correspond to . Likewise, appears on the left face of the tetrahedron, where , which would seem to correspond to . The label makes sense because that line passes through the interior of the tetrahedron, where all four portfolio weights may be nonzero. Does Figure 4 contain a typo, with the following labels accidentally reversed? $$ l_{234}\longleftrightarrow l_{124}
Possible typo in Markowitz (1952) “Portfolio Selection” illustration?
Ye Badi Laiteweit Babiii
