A Note on Simple Criteria for Optimal Portfolio Selection.

The article presents a note on a simple criteria for optimal portfolio selection. This note explores the economic rationale underlying the portfolio formation process based on the single-index model. In doing so the authors seek to enhance the intuitive appeal of the simplified portfolio criteria developed in the previous studies to practitioners. The lack of an explicit role for the index in selecting securities for the optimal portfolio in the procedure is somewhat counter-intuitive since the index is the driving force underlying security returns and hence underlying the returns on the optimal portfolio.This relationship enables one to see intuitively that securities are accepted because of their ability to capture the driving force in the optimization of the risk-return tradeoff.