Traditional portfolio construction in modern financial theory has operated under at least one of two assumptions: constraints derived from a utility function and/or a fully known multivariate distribution of asset returns.

True if standard portfolio theory literature (e.g. Markowitz mean-variance, expected-utility frameworks, Black-Litterman, Kelly-type methods) shows that traditional portfolio construction methods assume either a known utility function from which constraints or objectives follow, or a fully specified (known or estimated) joint distribution of returns, or both. Mostly true if this describes the dominant traditional approaches but some recognised traditional methods (e.g. heuristic 1/N or robust optimisation) rely on neither, as a minor exception. Mixed if a substantial share of traditional approaches rely on neither assumption. Mostly false if the characterisation fits only a narrow subset of the field. False if traditional portfolio theory generally does not rely on these assumptions.

Set before the research began.

1. E1 Markowitz model - Wikipedia Wikipedia · 13 August 2019

   “The investor's utility function is concave and increasing, due to their risk aversion and consumption preference.”

2. E2 Markowitz model - Wikipedia Wikipedia · 13 August 2019

   “The amount of information (the covariance matrix, specifically, or a complete joint probability distribution among assets in the market portfolio) needed to compute a mean-variance optimal portfolio is often intractable”

3. E3 7.3 Utility-Based Portfolios | Portfolio Optimization bookdown.org (Daniel P. Palomar, Portfolio Optimization book) · 1 May 2025

   “The model of rational decision-making in most of economics and statistics is expected utility theory, which was axiomatized by Neumann and Morgenstern (1944) and Savage (1954).”

4. E4 Stronger investment theory Thinking Ahead Institute (Willis Towers Watson) · 2016

   “An equally weighted portfolio (1/N portfolio) is the ultimate ‘naïve’ strategy that requires estimation of nothing.”

E1 and E2 describe the Markowitz mean-variance model as resting on an assumed concave investor utility function, and as needing a covariance matrix or a complete joint probability distribution of asset returns. E3 says expected utility theory is the model of rational decision-making in most of economics and statistics. E4 shows that the naive 1/N portfolio, which estimates nothing, is a recognised method that relies on neither assumption. Under the criteria this makes it a minor exception, which fits mostly true.