Explain why this is a flaw

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Reference no: EM133433717

Question: Practical portfolio optimization can be summarized as "finding optimal portfolio weights for available investment assets that would minimize risk while maximizing returns given investor's risk aversion". However, pure portfolio optimization suffers from a flaw-it gives a lot of weight to the assets (stocks, ETFs, bonds, etc) that performed well recently.

1. Explain why this is a flaw.

2. Identify some practical solutions that could mitigate this flaw.

Reference no: EM133433717

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