MODERN PORTFOLIO THEORY

Portfolio theory is basically an investment theory of online stock trades. Modern portfolio theory is attempted to get the knowledge about how to receive maximum return while reducing the risk of lose in online stock trades. MPT is no doubt is very beneficial and that's why it is utilizing widely across the globe and its creators are awarded with the Nobel Prize, but in the recent few years this technical theory is facing some new challenges in the online stock trades like behavioral economic due to which many organizations using it for investment are bankrupted in several financial crisis in online stock trades.

Modern portfolio theory is a mathematical expression which contains the concept of diversification having the objective of selection of different investing asset which have lower risk collectively as compare to the risk of individual asset in online stock trades

In technical term, modern portfolio theory presents return of asset as random variable in online stock trades, and portfolio is modeled as weighted combination of different asset and return of portfolio is the combination of returns of different assets. Modern portfolio theory considers an investor as rational and market as efficient in terms of online stock trades.

This theory was created in the end of 1960s and was accepted as an important progress in mathematical representation of finance and investment. But still many theories and practical approaches were presented against the modern portfolio theory. Highlighted issues of the criticism were, return on any financial investment does not necessarily follow the Gaussian distribution in online stock trades and correlation among the asset are not fixed they keeps on changing specially in the time slot of crisis in online stock trades where there is no guarantee of return. Furthermore, it is evident that market and investors are not efficient and rational in online stock trades.