portfolio theory

Portfolio theory

Portfolio Theory

1. See: Markowitz portfolio theory.

2. See: Post-modern portfolio theory.

portfolio theory

The theory that holds that assets should be chosen on the basis of how they interact with one another rather than how they perform in isolation. According to this theory, an optimal combination would secure for the investor the highest possible return for a given level of risk or the least possible risk for a given level of return. Although individual investors can use some of the ideas of portfolio theory in putting together a group of investments, the theory and the literature relating to it are so complex and mathematically sophisticated that the theory is applied primarily by market professionals. Also called modern portfolio theory.

portfolio theory

the study of the way in which an individual investor may achieve the maximum expected return from a varied PORTFOLIO of FINANCIAL SECURITIES which has attached to it a given level of risk. Alternatively the portfolio may achieve for the investor a minimum amount of risk for a given level of expected return. Return on a security consists of INTEREST or DIVIDEND, plus or minus any CAPITAL GAIN or loss from holding the security over a given time period. The expected return on the collection of securities within the portfolio is the weighted average of the expected returns on the individual INVESTMENTS that comprise the portfolio. However, the important thing is that the risk attaching to a portfolio (its variability) is smaller than the variability of each individual investment. See CAPITAL ASSET PRICING MODEL, EFFICIENT MARKET HYPOTHESIS, UNCERTAINTY.

portfolio theory

the study of the way in which an individual investor may theoretically achieve the maximum expected return from a varied PORTFOLIO of FINANCIAL SECURITIES that has attached to it a given level of RISK. Alternatively, the portfolio may achieve for the investor a minimum amount of risk for a given level of expected return. Return on a security comprises INTEREST or DIVIDEND, plus or minus any CAPITAL GAIN or loss from holding the security over a given time period. The expected return on the collection of securities within the portfolio is the weighted average of the expected returns on the individual INVESTMENTS that comprise the portfolio. The important thing, however, is that the risk attaching to a portfolio is less than the weighted average risk of each individual investment. See also EFFICIENT-MARKETS HYPOTHESIS, RISK AND UNCERTAINTY.
References in periodicals archive ?
They automate the most fundamental principles of Modern Portfolio Theory by recommending diversified portfolios of assets that aim to maximize returns for any given level of risk.
It is investment in a diversified by Nobel prize-winning economist Harry Markowitz, renowned in investment circles for his sometimes criticized but respected Modern Portfolio theory of diversification.
This concept is central to modern portfolio theory.
Modern Portfolio Theory and Investment Analysis, 9th Edition
Liquid's investment process is driven by 'Liquid Investment Theory' (LIT), a refinement of Modern Portfolio Theory, itself used in one form or another by all fundamentally driven investors.
As more service providers saw the lucrative advantages of entering the 401(k) market, Modern Portfolio Theory descended upon the retirement plan world like a dark cloud.
The objective of this research is to explore a new approach to airline seat allocation in global markets by employing a risk mitigation model, using portfolio theory to diversity an airline's route network.
Robert Fernholz and published in the paper, "Stochastic Portfolio Theory and Stock Market Equilibrium" in The Journal of Finance in 1982.
Indeed the full title of this book is Behavioural Investment Management: An Efficient Alternative to Modern Portfolio Theory.
The quantitative research that was used is based on Markowitz's Modern Portfolio Theory (MPT).
Value investing as a strategy fell out of favour in the latter part of the 20th century, to be replaced by Modern Portfolio Theory - which appears to me at present to be a way of investing your money until it is all gone
Modern portfolio theory is indeed modern, dating back to the late 1950s and early 1960s (Statman, 2005).