JOURNAL OF POLITICAL ECONOMY In the portfolio model the investor looks at individual assets only in terms of their contributions to the expected value and dispersion, or risk, of his portfolio return. With normal return distributions the risk of port folio p is measured by the standard deviation, o(R,), of its return, Rp nd the risk of an asset for an investor who holds p is the contribution of the asset to o(R,. If xip is the proportion of portfolio funds invested in sset i, Ou= CoV(Ri, R,) is the covariance between the returns on assets i and i, and N is the number of assets, then v(Ri, R, 0(Rp)= Wip j=1 (R) h the contribution of asset i to o(R )-that is, the risk of asset i in portfolio p-is proportional to x10/0(R)=cov(R,R)/0(R) Note that since the weights tip vary from portfolio to portfolio, the risk of an asset is different for different portfolios For an individual investor the relationship between the risk of an asset and its expected return is implied by the fact that the investors optimal portfolio is efficient. Thus, if he chooses the portfolio m, the fact that is efficient means that the weights xim, i=1, 2, ., N, maximize expected portfolio return subject to the constraints fractile range is usually suggested are assumed to be normal, whereas an other symmetric stable distribution that the mean-standard deviation version of the two-paramete portfolio model can be derived from the assumption that investors have quadratic utility functions, but the problems with this approach are also well known. In an case,the empirical evidence of Fama (1965a),Blume (1970), Roll(1970),K, Mille (1971),and Officer (1971)provides support for the "distribution"approach to l model. For a discussion of the issues and a detailed treatment of the two-parameter model, see Fama and Miller(1972, chaps. 6-8) We also concentrate on the special case of the two-parameter model obtained with and Miller (1972, chap. 7), the important establ etric stable model are the same as those of the model Tildes ( are used to denote random varial d the one-period percentage return is most often referred to just as the return