Modern portfolio theory

“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

model strength to out-of-sample predictive accuracy is to be determined, by dividing each models portfolio into four segments, High Adjusted R2 , Medium Adjusted R2, Low Adjusted R2, and a random mixture as the control. The research uses the S&P500 as the “market” portfolio. Using ten years of monthly data from the period between 1st January 2004 to the 31st November 2014, as in sample data. The portfolio returns were then monitored for an

development of a quantitative method that takes the diversification benefits of portfolio allocation into account. Modern portfolio theory is the result of his work on portfolio optimization. Ideally, in a mean-variance optimization model, the complete investment opportunity set, i.e. all assets, should be considered simultaneously. However, in practice, most investors distinguish between different asset classes within their portfolio-allocation frameworks. In our analysis, we view the process of asset allocation

people dealing with their income, while portfolio is an important investment vehicle. In the same time, financial services industry has played a critical part in making investment portfolio available to ordinary people. In this essay, the meaning and functions of portfolio will be analyzed and it will argue the advantages of the financial services industry outweigh the disadvantages. Firstly, portfolio theory has become an essential strategy in the modern investment market. In general, according

justification of investor’s behavior and development of optimization model for portfolio selection process. In 1990, Markowitz received a Nobel Prize for his contributions to financial economics and corporate finance, the first time presented in his “Portfolio Selection” (1952) and more extensively in his monography “Portfolio Selection: Efficient Diversification” (1959). His seminal works form the foundation of the Modern Portfolio Theory (MPT). Markowitz’ ideas ware later substantially expanded by his Nobel

CAPM to this industry. 2. Concept of Capital asset pricing model During 1952, Markowitz came out with a theory based on diversified investment is able to construct the risk-averse investors. He diversified investment portfolio theory and efficiency of the priory rigorous mathematical tools as a means to demonstrate risk-averse investors in a number of risky assets in construct the optimal portfolio methods. But due

Markowitz portfolio allocation theory First name, family name Date and place of birth Matriculation number Maria Titova 10.08.1992, Moscow 2227909 Telephone, e-mail Date of submission: +49 152 0218 1097 5rd December 2014 maria.titova@haw-hamburg.de Lecturer: Prof. Dr. Decker Course: Corporate Finance Name of degree program: International Business (M.Sc.) - II - I Abstract The idea of diversification is rather old. The axiom “don’t put all your eggs in one basket” definitely precedes economic theory. However

There are some theories to help investors: portfolio theory, capital asset pricing model (CAPM), option pricing model and so on. This essay will explain portfolio theory firstly. Secondly, this essay will explain CAPM and discuss the importance of the assumptions of CAPM. Thirdly, this essay will explain arbitrage pricing theory (APT) and factors model. Finally, this essay will compare CAPM with APT and factors model. Harry Markowitz put forward portfolio theory in 1952; portfolio theory is that using

investment portfolios and guide investors’ investment behaviours (McLaney, 2006). The CAPM was invented by William F. Sharpe, John Lintner and Jan Mossin, basing on the earlier work of Harry Markowitz on diversification and modern portfolio theory, and now it is universally applied (Vernimmen, et

risk corresponds to a lower return. Moreover, investment risk can be substantially reduced through diversification, which spreads a portfolio across different industries, businesses and investment options. The makeup of a diversified portfolio continually changes based on an investor’s time horizon and investment goals. In accordance with the Modern Portfolio Theory (MPT), one can maximize return while reducing risk, through assessing investments standard deviation and beta. When applied to the