Practical analysis for investment professionals

Modern Portfolio Theory (MPT)


Building a CAPM That Works: What It Means for Today’s Markets

The capital asset pricing model (CAPM) is a marvel of economic scholarship. The problem is that it doesn’t always work in practice. So, we fixed it.

Roger G. Ibbotson: What Works in Asset Allocation

How important is asset allocation? Roger G. Ibbotson shared his insights.

Book Review: Heterodox Investment Theory

Thomas Pistorius challenges much of mainstream investment theory that uses mathematical statistics to predict returns.

Book Review: Getting Back to Business

Getting Back to Business challenges the premises and prescriptions of modern portfolio theory (MPT) and offers an alternative investment approach.

Top Five Articles from September: The Value Factor, Non-Retirement, Finance and Civilization

A defense of modern portfolio theory (MPT) by Nathan Erickson, CFA, CAIA, and Richard Stott; Nicolas Rabener's analysis of the value of factor investing; and an examination of the non-retirement phenomenon by Barbara Stewart, CFA, were among the leading posts from last month.

Raising Modern Portfolio Theory (MPT) from the Dead

C. Thomas Howard and Jason Voss, CFA, have called for the demise of modern portfolio theory (MPT) and the capital asset pricing model (CAPM). They say “financial markets should be viewed and analyzed using a behavioral lens.” Nathan Erickson, CFA, CAIA, and Richard Stott have a different opinion.

C. Thomas Howard: “View the Markets as They Are”

C. Thomas Howard, an opponent of the efficient markets hypothesis, advocates for a radical departure from the idea of diversification at the core of a healthy portfolio.

Has Goals-Based Investing Ruined Modern Portfolio Theory (MPT)?

Although a fundamentally important financial concept, modern or mean-variance portfolio theory (MPT) has been of little practical value to retail investors in their asset allocation. Hansi Mehrotra, CFA, believes it’s time to develop a more practical risk-management measure.

Has Emerging Market Debt Entered the Mainstream?

GMO's Tina Vandersteel, CFA, believes emerging market debt is attractively priced, particularly local currency debt at current relative levels. Vandersteel believes opportunities to outperform are real, especially from a bottom-up perspective, despite challenges created by declining liquidity.

What Hungry Investors Really Want from Their Financial Advisers

Investors want what Meir Statman calls “utilitarian benefits.” We know that a diversified, low-cost portfolio is theoretically best, but we'd rather have the amusement and bragging rights of expensive, risky investments like hedge funds and specialized equity managers.