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SECURITY ANALYSIS AND PORTFOLIO
MANAGEMENT
PORTFOLIO THEORY AND TYPES
ARAVINTH.S
SAFIULLA WAZEEM AHAMED.S
GOBI.T
VISHNURAM.V
II - MBA
PORTFOLIO THEORY
 The modern portfolio theory (MPT) is a practical method for
selecting investments in order to maximize their overall returns
within an acceptable level of risk. This mathematical framework is
used to build a portfolio of investments that maximize the amount of
expected return for the collective given level of risk.
 American economist Harry Markowitz pioneered this theory in his
paper "Portfolio Selection," which was published in the Journal of
Finance in 1952.1 He was later awarded a Nobel Prize for his work
on modern portfolio theory.
TYPES OF PORTFOLIO THEORY
Modern Portfolio Theory
 Post-Modern Portfolio Theory
MODERN PORTFOLIO THEORY
The Modern Portfolio Theory (MPT) refers to an investment
theory that allows investors to assemble an asset portfolio
that maximizes expected return for a given level of risk. The
theory assumes that investors are risk-averse; for a given
level of expected return, investors will always prefer the less
risky portfolio.
POST-MODERN PORTFOLIO THEORY
The post-modern portfolio theory (PMPT) is a portfolio optimization
methodology that uses the downside risk of returns instead of the mean
variance of investment returns used by the modern portfolio
theory (MPT). Both theories describe how risky assets should be
valued, and how rational investors should utilize diversification to
achieve portfolio optimization. The difference lies in each theory's
definition of risk, and how that risk influences expected returns.
Difference Between the Modern Portfolio Theory
and the Post-Modern Portfolio Theory
 The modern portfolio theory (MPT) was a breakthrough in personal
investing. It suggests that a conservative investor can do better by
choosing a mix of low-risk and riskier investments than by going entirely
with low-risk choices. More importantly, it suggests that the more
rewarding option does not add additional overall risk. This is the key
attribute of portfolio diversification.
 The post-modern portfolio theory (PMPT) does not contradict these basic
assumptions. However, it changes the formula for evaluating risk in an
investment in order to correct what its developers perceived as flaws in the
original.
 Followers of both theories use software that relies on either MPT or PMPT
to build portfolios that match the level of risk that they seek.
THANK YOU
SAPM team 10.pptx

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SAPM team 10.pptx

  • 1. SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT PORTFOLIO THEORY AND TYPES ARAVINTH.S SAFIULLA WAZEEM AHAMED.S GOBI.T VISHNURAM.V II - MBA
  • 2. PORTFOLIO THEORY  The modern portfolio theory (MPT) is a practical method for selecting investments in order to maximize their overall returns within an acceptable level of risk. This mathematical framework is used to build a portfolio of investments that maximize the amount of expected return for the collective given level of risk.  American economist Harry Markowitz pioneered this theory in his paper "Portfolio Selection," which was published in the Journal of Finance in 1952.1 He was later awarded a Nobel Prize for his work on modern portfolio theory.
  • 3.
  • 4. TYPES OF PORTFOLIO THEORY Modern Portfolio Theory  Post-Modern Portfolio Theory
  • 5. MODERN PORTFOLIO THEORY The Modern Portfolio Theory (MPT) refers to an investment theory that allows investors to assemble an asset portfolio that maximizes expected return for a given level of risk. The theory assumes that investors are risk-averse; for a given level of expected return, investors will always prefer the less risky portfolio.
  • 6. POST-MODERN PORTFOLIO THEORY The post-modern portfolio theory (PMPT) is a portfolio optimization methodology that uses the downside risk of returns instead of the mean variance of investment returns used by the modern portfolio theory (MPT). Both theories describe how risky assets should be valued, and how rational investors should utilize diversification to achieve portfolio optimization. The difference lies in each theory's definition of risk, and how that risk influences expected returns.
  • 7. Difference Between the Modern Portfolio Theory and the Post-Modern Portfolio Theory  The modern portfolio theory (MPT) was a breakthrough in personal investing. It suggests that a conservative investor can do better by choosing a mix of low-risk and riskier investments than by going entirely with low-risk choices. More importantly, it suggests that the more rewarding option does not add additional overall risk. This is the key attribute of portfolio diversification.  The post-modern portfolio theory (PMPT) does not contradict these basic assumptions. However, it changes the formula for evaluating risk in an investment in order to correct what its developers perceived as flaws in the original.  Followers of both theories use software that relies on either MPT or PMPT to build portfolios that match the level of risk that they seek.