portfolio theory

A branch of financial economics associated with Harry M. Markowitz (born 1927) that analyzes the *diversification of *risk through the holding of a *portfolio of investments. A major assumption underlying portfolio theory is that investors are *risk-averse by nature, yet they desire high *returns on their investments. Investors therefore expect higher *returns from higher risks, and they aim to hold efficient portfolios of investments in line with their *risk appetites. An efficient portfolio of investments is one that gives the highest possible return for a specific level of risk, or the smallest possible level of risk for a specific expected return. Efficient portfolios of investments generally benefit from the spreading of risk through *diversification, but in any portfolio there is an element of risk that cannot be diversified away: this is known as *systematic risk.

Auditor's dictionary. 2014.

Look at other dictionaries:

  • portfolio theory — See: modern portfolio theory. Bloomberg Financial Dictionary …   Financial and business terms

  • portfolio theory — The theory that rational investors are averse to taking increased risk unless they are compensated by an adequate increase in expected return. The theory also assumes that for any given expected return, most rational investors will prefer a lower …   Accounting dictionary

  • portfolio theory — The theory developed by H. M. Markowitz that rational investors are averse to taking increased risk unless they are compensated by an adequate increase in expected return. The theory also assumes that for any given expected return, most rational… …   Big dictionary of business and management

  • portfolio theory — /pɔ:t fəυliəυ ˌθɪəri/ noun a basis for managing a portfolio of investments (a mix of safe stocks and more risky ones) …   Dictionary of banking and finance

  • Modern portfolio theory — Portfolio analysis redirects here. For theorems about the mean variance efficient frontier, see Mutual fund separation theorem. For non mean variance portfolio analysis, see Marginal conditional stochastic dominance. Modern portfolio theory (MPT) …   Wikipedia

  • Post-modern portfolio theory — [The earliest citation of the term Post Modern Portfolio Theory in the literature appears in 1993 in the article Post Modern Portfolio Theory Comes of Age by Brian M. Rom and Kathleen W. Ferguson, published in The Journal of Investing, Winter,… …   Wikipedia

  • Maslowian Portfolio Theory — (MaPT) creates a normative portfolio theory based on human needs as described by Abraham Maslow.[1] It is in general agreement with behavioral portfolio theory, and is explained in Maslowian Portfolio Theory: An alternative formulation of the… …   Wikipedia

  • Dedicated Portfolio Theory — Dedicated Portfolio Theory, in finance, deals with the characteristics and features of a portfolio built to generate a predictable stream of future cash inflows. This is achieved by purchasing bonds and/or other fixed income securities (such as… …   Wikipedia

  • Post-Modern Portfolio Theory - PMPT — A portfolio optimization methodology that uses the downside risk of returns instead of the mean variance of investment returns used by modern portfolio theory. The difference lies in each theory s definition of risk, and how that risk influences… …   Investment dictionary

  • Modern Portfolio Theory - MPT — A theory on how risk averse investors can construct portfolios to optimize or maximize expected return based on a given level of market risk, emphasizing that risk is an inherent part of higher reward. Also called portfolio theory or portfolio… …   Investment dictionary

Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”

We are using cookies for the best presentation of our site. Continuing to use this site, you agree with this.