DEFINITION of '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 management theory."
INVESTOPEDIA EXPLAINS 'Modern Portfolio Theory - MPT'
According to the theory, it's possible to construct an "efficient frontier" of optimal portfolios offering the maximum possible expected return for a given level of risk. This theory was pioneered by Harry Markowitz in his paper "Portfolio Selection," published in 1952 by the Journal of Finance.
There are four basic steps involved in portfolio construction:
The measurement of how the actual returns of a group of securities ...
A portfolio construction theory devised by free-market investment ...
A set of optimal portfolios that offers the highest expected ...
A measure of the degree to which returns on two risky assets ...
In the context of technical analysis, it is the process of adjusting ...
A Nobel Memorial Prize winning economist who devised the modern ...