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 ?
The actual theory of financial assets' portfolio management is a refinement of the "modern portfolio theory" (Mean-Fariance Analysis) initiated by Harry Markowitz.
* Modern portfolio theory and multi-factor risk models
This suggestion is called Modern Portfolio Theory. It holds that a diversified range of assets will produce not only more consistent, but also better returns over time than contending ways of running a portfolio, namely securities selection and market timing.
A professor specializing in 19th-century Irish literature instead of modern portfolio theory should not have less of a say than his business school colleagues in the future of the institution.
The patent portfolio theory thus explains what is known as "the patent paradox": in recent years patent intensity--patents obtained per research and development dollar--has risen dramatically even as the expected value of individual patents has diminished.
Johnson, 1996, "Speculating on the Efficacy of Speculation--An Analysis of the Prudent Persons Slipperiest Term of Art in Light of Modern Portfolio Theory", Stanford Law Review, 48:419-447
The basic rule of spreading your risk has been extended by the modern portfolio theory that tests the returns of a combination of assets against the volatility of that combination.
The primary subject matter of this case is to demonstrate an application of modern portfolio theory in construction and measurement of performance of an investment portfolio.
This diversification of risk, as described in portfolio theory, mitigates the total risk.
This became Markowitz's doctoral study and created a concept known as Modern Portfolio Theory, MPT for short.
Seminar attendees will learn the basic mechanics of portfolio theory, develop an understanding of commercial real estate investment and portfolio management terminology, learn to effectively communicate with portfolio managers and other real estate investment professionals, explore the opportunities and pitfalls of including commercial real estate in the broader investment portfolio, develop an understanding of alternative commercial real estate investment vehicles and learn how to implement a portfolio management strategy.
As Modern Portfolio Theory teaches, financial markets are by their nature unpredictable.