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 ?
With declining prospective investment returns, the application of modern portfolio theory can be a useful tool in accessing the benefits of diversification to increase returns without increasing risk.
Markowitz, the father of modern portfolio theory, wonders if the way most portfolio managers want to manage real estate assets within their client's portfolios is correct.
And in no other book is modern portfolio theory presented with such remarkable clarity.
Under ERISA, investment decisions are to be made using generally accepted investment theories (such as modern portfolio theory and diversification) and prevailing investment industry practices.
Harry Markowitz received the Nobel Prize in Economic Sciences for his work on investment risk and return, and is recognized as the father of modern portfolio theory.
Coverage progresses from the theory of interest to chapters on bonds, discrete probability for finance, portfolio theory, and valuation of derivatives.
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.
Modern Portfolio Theory and Investment Analysis, 9th Edition
The company'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.
A bit of good news: Consistent with portfolio theory, most advisors (75%) did ask clients about their demographic characteristics to determine risk preferences and investment time horizons.
Summary paragraph: The 83-year-old Nobel Prize winning economist and grandfather of modern portfolio theory spoke with a/C/0 from his San Diego office on his pioneering work that paved the way toward the embrace of diversification in investing.
This article focuses on target-date funds and modern portfolio theory.