This book and Exercises evaluate Modern Portfolio Theory (Markowitz, CAPM, MM and APT) for future study. From the original purpose of MPT through to asset investment by management, we learn why anybody today with the software and a reasonable financial education can model portfolios. However, one lesson from the 2007 meltdown is that computer driven models are so complex that hardly anybody understands what is going on.
Chapter 1 – Introduction to Modern Portfolio Theory - Economist at Large
Modern Portfolio Theory is based partly on the assumption that investors bearing risk need to be compensated in the form of higher average returns on their investments. Stocks are riskier than Treasury Bills so we expect them to have higher average returns and data shows that they do. In this TechCrunch story, Professor Paul Pfleiderer argues that Modern Portfolio Theory is the best investment methodology out there.