Investor Glossary-modern portfolio theoryInvestor Glossary-modern portfolio theoryInvestor Glossary-modern portfolio theoryInvestor Glossary-modern portfolio theoryInsightful stock market charts - Click here
Categories    # A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Modern Portfolio Theory

The HTML to link to this page

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...

Learn about investing with the Investor Glossary Term of the Day

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

Accounting | Banking | Bonds | Brokers | Economy | Futures | Mutual Funds | Options | Real Estate | Retirement | Stocks | Taxes | Technical Analysis
Investor Glossary | Term of the Day | Suggest a Term | Chart of the Day | Dogs of the Dow
©2004-2015 Investor Glossary - All rights reserved - Terms of Use