DEFINITION of 'PostModern 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 expected returns. PostModern Portfolio Theory (PMPT) uses the standard deviation of negative returns as the measure of risk, while modern portfolio uses the standard deviation of all returns as a measure of risk.
BREAKING DOWN 'PostModern Portfolio Theory  PMPT'
The differences between risk, as defined by the standard deviation of returns, between the postmodern portfolio theory and modern portfolio theory is the key factor in portfolio construction. Modern portfolio theory assumes that symetrical risk whereas PMPT assumes asymetrical risk. Downside risk captures what investors fear: having negative returns. After all, high positive returns are viewed as a good thing!

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Why is risk return tradeoff important in designing a portfolio?
Learn how the risk return tradeoff is used in the construction of portfolios, and how modern portfolio theory seeks to diversify ... Read Answer >> 
What types of assets lower portfolio variance?
Learn what type of assets reduce portfolio variance and how modern portfolio theory uses correlation coefficients. Read Answer >> 
What are the advantages of portfolio planning with the efficient frontier?
Learn about modern portfolio theory and the efficient frontier. Understand the advantages of portfolio planning with the ... Read Answer >> 
How is risk aversion measured in Modern Portfolio Theory (MPT)?
Find out how risk aversion is measured in modern portfolio theory (MPT), how it is reflected in the market and how MPT treats ... Read Answer >> 
Is there a positive correlation between risk and return?
Learn about the positive correlation between risk and the potential for return, and understand how risk is used to construct ... Read Answer >> 
How reliable is the mean variance analysis of an investment?
Learn how mean variance analysis is used to determine the historical volatility of an asset and how future volatility may ... Read Answer >>