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  • Modern Portfolio Theory
  • Modern Portfolio Theory

    Also known as:
  • Portfolio Management Theory
  • Portfolio Theory
  • MPT
  • Category: Financial Theories

    Modern portfolio theory is based on the concept of quantifying risk and maximizing returns for a given level of risk. The theory was originated by Harry Markowitz and was introduced in his Portfolio Selection paper, published in Journal of Finance in 1952. The theory uses the concept of an Efficient Frontier, a curve on the return vs. risk plot that represents the maximum return for the given level of risk. It’s well known that diversification can reduce risk, but MPT provides a way to quantitatively measure the risk of a portfolio. Using MPT and computer techniques it’s possible to construct an optimized portfolio in an attempt to achieve maximum possible returns for a given level of risk.

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