




Introduced by Nobel Prize winner Harry Markowitz in the 1950s, modern portfolio theory proposes that investors may minimize market risk for an expected level of return by constructing a diversified portfolio. Modern portfolio theory emphasizes portfolio diversification over the selection of individual securities. A simplified version of modern portfolio theory is "Don't put your eggs in one basket". Modern portfolio theory established the concept of the "efficient frontier." An efficient portfolio, according to modern portfolio theory, is one that has the lowest risk for a given level of expected return. An underlying concept of modern portfolio theory is that greater risk is associated with higher expected returns. To construct a portfolio consistent with modern portfolio theory, investors must evaluate the correlation between asset classes as well as the risk/return characteristics of each asset. Modern portfolio theory offers a disciplined approach to investing that is still widely used today.
Rate this modern portfolio theory definition...




Where is the market headed? The answer may surprise you. Find out with the exclusive & Barron's recommended charts of Chart of the Day. 

Popular Terms: irrevocable trust, minority interest, Zero Cost Collar, 144a, open position, EBITDA, 1035 exchange, annual return, FICO score, phantom income, in escrow, diluted share, deferred revenue, real GDP, deferred tax, current ratio, FTSE, 1031 exchange, dividends payable, margin rate, stock market close, limit order, VIX, retained earnings, per diem, debt service coverage, class C shares, stock split, average price per share, exdividend, command economy, exdividend date, reverse mortgage, liquidity ratio, option premium, risk management, quality assurance, 401a, required rate of return, cancelled check, implied volatility, covered put, LIBOR, Key Rate Duration, labor relations, whollyowned subsidiary, APR, balance sheet, inflation


 