THE JOURNAL OF FINANCE • VOL. XXXVII NO 2 • MAY 1982
HARRY MARKOWITZ [1952, 1956, 1959] developed a theory of portfolio selection based on the optimization of a quadratic function subject to linear constraints. His work led to the development of a single period equilibrium model, the Sharpe-Lintner capital asset pricing model (CAPM) (see Sharpe , Lintner [1965a, 1965b]), R. C. Merton [ 1973] extended the CAPM to a continuous time model using lognormal diffusion processes to represent stock price series and showed that the original conclusions continued to hold virtually without change. In this continuous time model, it became possible to observe the dynamic interaction between investors’ behavior and the behavior of the stocks. In fact, Rosenberg and Ohlson  showed that this interaction led to internal inconsistencies in the continuous time CAPM. In this paper we analyze long term portfolio performance compatible with equilibrium constraints on global portfolio structure.