Important Points for IC 99 - Asset Management Exam
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The modern portfolio theory provides the research studies and analysis on the effects of asset risks, returns, correlation and diversification of risks for maximisation of portfolio returns.
Harry Markowitzs Modern Portfolio Theory (MPT) assists in the selection of the most efficient portfolio by analysing various possible portfolios of the given securities.
As per HM model, a portfolio that gives maximum return for a given risk, or minimum risk for given return is an efficient portfolio.
For selection of the optimal portfolio or the best portfolio, the risk-return preferences are to be analysed by the investors. An investor who is highly risk averse will hold a portfolio on the lower left hand of the frontier, and an investor who isnt too risk averse will choose a portfolio on the upper portion of the frontier.
Risk-indifference curves are plotted along with the investment opportunity set of attainable portfolios. All portfolios that lie below the efficient frontier have a risk-return trade-off that is inferior to those that lie on the efficient frontier.
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