MODERN PORTFOLIO THEORY: A REVIEW OF LITERATURE
AMIR KHAN *
COMSATS Institute of Information Technology, Abbottabad, Pakistan.
YASIR BIN TARIQ
Department of Management Sciences, COMSATS Institute of Information Technology, Abbottabad, Pakistan.
MUHAMMAD KAMRAN KHAN
Department of Management Sciences, University of Haripur, Khyber Pakhtunkhwa, Pakistan.
*Author to whom correspondence should be addressed.
Abstract
In this paper the Modern Portfolio Theory is explained which contains basic two theories, the Markowitz theory of Portfolio and the asset pricing theory. After review of number of research paper related to the particular topic it is concluded that there are two different opinions and results related to the Modern Portfolio Theory (MPT). Some of the researchers are in the favor of the MPT, having the opinion that collectively, both the theories provide a hypothetical framework for identification & the measurement of risk related to the investment and formulation of the associations between expected risk and return. MPT is having better sharing of risk compare to the traditional approach used by the portfolios. Some other researcher reveals that CAPM is essentially an ex ante notion that provide with a way to think concerning the trade-off of risk and return, in the circumstance of proficiently diversified investment portfolios. On the other hand there are number of researchers who are criticizing the Modern Portfolio Theory (MPT) having the view that after comprehensive review a number of flaws were pointed out among them the unsophisticated assumptions a significant flaw pointed out is a straight correlation of returns and risks.
Keywords: Portfolio theory, CAPM, risk, return