Modern Portfolio Theory Is An Essential Part Of Higher Return
Modern portfolio theory is an investment theory based on that investors can construct portfolio to maximize return which based on a given level of market risk, emphasizing that risk is an essential part of higher return. Modern portfolio theory is one of the most significant economic theory dealing with finance and investment, which was published by Harry Markowitz in his paper “Portfolio Selection” in 1952 by Journal of Finance (Shipway, 2009).
According to Shipway (2009), the problem of direct real estate investment is the lack of liquidity which compared with other investment media. The reason is real estate special features, such as the large size, high transaction costs, infrequency transaction of real estate and delay due to legal work (ibid). The problem of relative illiquidity impacts the attractiveness of property as an asset class. The portfolio managers’ ability was restricted by illiquidity to switch between real estate and other asset classes. Moreover, the restructuring program of the real estate portfolio in response to changing perceptions of sectorial and the potential of geographical performance should be limited. The investor’s ability would indirectly reduced by Illiquidity, which to apply formal portfolio theory to real estate portfolio decisions. On the other hand, most of institutional investors do not like to invest more in real estate because of the misjudgment of real estate investment (Hishamuddin, 2016). Portfolio…

The Concept Of The Modern Portfolio Theory
1887 Words  8 Pagesthe basic concept of the modern portfolio theory was written by Harry Markowitz, in which he explained that assets in an investment portfolio are not only to be selected on the basis of its merit but also by how it’s price changes relative to every other asset in the portfolio. Investment can be stated as a tradeoff between expected return and risk, the riskier the investment the higher the return and vice versa. It allows us to make a decision to choose between the portfolio with either the highest…

Portfolio Effect on Risk and Return
1121 Words  5 Pagesdiversified portfolios and by excluding any portfolio that offers an inferior return for a given amount of risk. While this concept seems obvious, one of your clients, Laura Spegele, is considering purchasing a stock she will bear. To convince her that the acquisition is not desirable, you want to demonstrate the tradeoff between risk and return. While it is impractical to show the tradeoff for all possible combinations, you believe that illustrating several combinations of risk and return and applying…

The Performance Of Portfolio Theory
1521 Words  7 PagesIntroduction This report is established to illustrate the performance of portfolio by using modern portfolio theory to make one portfolio allocation decisions per year (round) over nine years (rounds) in an investment game and find out a reasonable strategy to meet a particular investment objective. Specifically, it tries to figure out following questions: 1. How the investment decisions can be made？ 2. The research that is undertook 3. The critical factors that influenced the decision 4. How are…

Modern Portfolio Theory : Our Asset Allocation Strategy
813 Words  4 PagesWe employ the modern portfolio theory in our asset allocation strategy. We take into consideration personal risk tolerance to create clients’ portfolios. The modern portfolio theory posits that an investor should be rewarded for taking on risk by receiving an appropriate amount of extra return and concomitantly. This means higher returns normally carry greater risks. What this means for you is that one can’t simply judge an investment by its rate of return; the investment may be riskier than…

Portfolio Theory Essay example
2185 Words  9 Pages“The Benefits of diversification are clear. Portfolio theory has played a crucial role in explaining the relationship between risk and return where more than one investment is held. It also enables us to identify optimal and efficient portfolios.” With Reference to this statement, describe, discuss and illustrate the principles of portfolio theory. Your essay should include coverage of the Markowitz Efficient Frontier and the Capital Market Line. Declaration: I confirm that this submission…

Modern Portfolio Theory
5165 Words  21 PagesMBA Modern Portfolio Theory Corporate Finance II Final Paper Table of Contents 1. Title Page pg. 1 2. Table of Contents pg. 2 3. Introduction/ Executive Summary pg. 3 4. Modern Portfolio Theory pg. 3 5. Portfolio Management pg. 4 6. Controlling the Risk pg. 5 7. Diversification pg. 6 8. CAPM pg. 7 9. Beta: Advantages and Disadvantages pg. 8 10. Options pg. 10 11. Hedging…

Portfolio Theory : Risk, Return, Preferences And Opportunities
1462 Words  6 PagesIntroduction A portfolio is the collection of securities an investor holds. Portfolio theory is about risk, return, preferences and opportunities. E.g. if there are three assets, A, B, and C and the expected rate of return and volatility of each of the assets. Comparing asset B to asset A investors would prefer asset B over asset A because even if asset A and B have the same volatility the expected return of asset B is much higher than A. Similarly when comparing asset A to Asset C investors would…

Modern Portfolio Theory Essay
1060 Words  5 Pagesfoundations were laid bare. Even the core of investing theories related to portfolios has come under pressure. Yet the belief in Modern Portfolio Theory has remained strong amongst the investors. Modern Portfolio Theory (MPT) is a theory that tells investors how to minimise risks associated with investment and at the same time, maximise return on the investments by proper resource allocation and diversifying their portfolios – it is based on the theory that risk can be lessened by diversifying into uncorrelated…

Portfolio Theory and the Capital Asset Pricing Model (Capm) Are Essential Tools for Portfolio Managers and Other Stock Market Investors’
2673 Words  11 Pages‘Portfolio theory and the capital asset pricing model (CAPM) are essential tools for portfolio managers and other stock market investors’ In order to be successful, an investor must understand and be comfortable with taking risks. Creating wealth is the object of making investments, and risk is the energy that in the long run drives investment returns. PORTFOLIO THEORY Modern portfolio theory has one, and really only one, central theme: “In constructing their portfolios investors need to look at…

Modern Portfolio Theory Adaptations ( Pmpt )
1267 Words  6 PagesModern Portfolio Theory Adaptations MPT correlates the distribution of assets to the risk of investments. This theory also acknowledges an investors aversion to risk and required return rates (Geambasu, Sova, Jianu, & Geambasu, 2013). Moreover, MPT emphasizes the importance of diversifying as much as possible to eliminate risk. In order to measure the risk of an investment MPT relies on the standard deviation of all returns (Chambers, 2010). However, due to new analysis suggesting that MPT produces…
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