| Modern Portfolio Theory - MPT |
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A theory on how risk averse investors can construct portfolios in order
to optimize market risk against expected returns. The theory emphasizes that risk should not be viewed in a negative context, but rather as an inherent part of higher reward. According to the
theory, an efficient frontier of optimal portfolios can be constructed offering the maximum possible expected return for a given level of risk.
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Also called "portfolio theory" or "portfolio
management theory", it was originally developed by Harry Markowitz with his paper "Portfolio Selection" published in 1952 by the Journal of Finance.
There are 4 basic steps:
-Security Valuation
-Asset Allocation
-Portfolio Optimization
-Performance Measurement |
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Dictionary
