Modern Portfolio Theory and the Efficient Frontier: a Look Into Investment Theory

“Modern Portfolio Theory and the Efficient Frontier: A Look into Investment Theory”

Foreword

With respect to the topic of Modern Portfolio Theory and to the utmost respect to the authors of my credible sources, many can deem my method of citation as “out of the norm”. Allow me to explain myself. Upon reading and going over my sources I began to realize that many of them share the same ideas and assumptions, and they all credit their work back to the pioneer of Modern Portfolio Theory, Harry Markowitz, who I am also citing in my work. Therefore, since my sources have given me information that can be considered synonymous with one another; rather than citing every passage, paragraph, or sentence to a single source, my whole paper has been created by paraphrasing or writing the gist of the point that all my sources were attempting to get across. This is because several of my passages have been created based on not just one single source, but a collection of a few of them, if not all of them at one point. Hence you will not see any citations or footnotes in my paper. I hope for my bibliography to suffice the requirements, as this is not my original work by any means, but my take on Market Portfolio Theory and the Efficient Frontier using a similar verbiage and choice of words that the other authors of my sources have done.

The general, paraphrased definition of “Modern Portfolio Theory”, for which this is a common definition created from reading several definitions across different financial resources over the Internet; Modern portfolio theory is a theory of investment which attempts to maximize portfolio expected return for a given amount of portfolio risk, or equivalently minimize risk for a given level of expected return, by carefully choosing the proportions of various assets. Furthermore, it is a theory on how risk-averse investors can construct portfolios to optimize or maximize expected return based on a given level of market risk,...