What Is Portfolio Analysis?

Portfolio theory refers to a portfolio of several securities whose returns are the weighted average of those securities 'returns, but whose risk is not the weighted average risk of these securities' risks. A portfolio can reduce non-systemic risks.

Portfolio theory

American economist Markowitz first proposed Portfolio Theory in 1952, and carried out systematic, in-depth and fruitful research.

The theory contains two important elements: the mean-

(Portfolio theory)

Portfolio theory risk management

The portfolio theory provides an important ideological basis and a set of analysis systems for the construction of an effective investment portfolio and the analysis of a portfolio. Its impact on modern investment management practices is mainly reflected in the following four aspects:

1. For the first time, Markowitz accurately defined the two basic concepts of investment management: risk and return. From then on, considering both risk and return is an indispensable two parameters (parameters) for describing a reasonable investment objective.

Before Markowitz,

Markowitz's portfolio theory is not only

Keynes Beauty Contest

Beauty pageant theory is a theory on investment in financial markets founded by the famous British economist John Maynard Keynes (1883-1946). Keynes applied the rules and phenomena of beauty pageants that people are familiar with, researched and explained the laws of stock market fluctuations, and believed that financial investment is like a beauty pageant. It is not essential for investors to buy the stocks they think are the most valuable, only to correctly predict other investors Only in the speculative market, can we win a stable game in the speculative market, and use a game similar to drums and flowers to describe the risks in stock market investment.

Random Walk Theory

In 1959, Osborne (M.F.M. Osborne) put forward the theory of random walk , thinking that buyers and sellers in stock transactions are as clever and witty, and the formation of stock prices depends on the actual response of the market to random event information. Today's stock price has basically reflected the relationship between supply and demand. The change of stock prices is similar to the "Brownian motion", with the characteristics of random walks, and its movement path does not follow any rules. Therefore, stock price volatility is unpredictable. According to technical charts, it is actually nonsense to predict the future stock price trend.

Modern Portfolio Theory (MPT)

In 1952, American economist Harry M. Markowit (1927-) applied the two quantitative indicators of the mean and variance of portfolio returns for the first time in his academic paper "Asset Selection: Effective Diversification" , Mathematically clearly defines investor preferences, and mathematically explains the principle of investment decentralization, systematically illustrates the problem of asset portfolio and selection, marking the beginning of modern portfolio theory (MPT) . The theory holds that an investment portfolio can reduce non-systematic risks. An investment portfolio is determined by the securities and their weights. The selection of unrelated securities should be the goal of constructing an investment portfolio.

Efficient Market Hypothesis (EMH)

In 1965, Eugene Fama (1939-), a professor of finance at the University of Chicago, published a doctoral dissertation entitled "Price Behavior in the Stock Market" and deepened the theory in 1970. Put forward Efficient Markets Hypothesis (EMH). The efficient market hypothesis has a questioned premise that investors participating in the market are rational and able to respond quickly and reasonably to all market information. The theory holds that in a stock market with sound laws, good functions, high transparency, and sufficient competition, all valuable information has been timely, accurately, and fully reflected in the stock price trend, including the current and future value of the enterprise, unless there is a market Manipulation, otherwise it is impossible for investors to obtain excess profits higher than the market average by analyzing past prices.

Behavioral Finance (BF)

In 1979, Daniel Kahneman, a professor of psychology at Princeton University, and others published an article entitled "Expectation Theory: Decision Analysis in a State of Risk", establishing a psychological theory of the human risk decision process. Become a milestone in the history of behavioral finance.

Behavioral Finance (BF) is a comprehensive theory that organically combines finance, psychology, and anthropology, and tries to reveal the irrational behavior and decision rules of financial markets. The theory holds that traditional economics based on rational assumptions is not sufficient to explain people's risky decision-making behaviors. Stock prices are not only determined by the intrinsic value of enterprises, but are also largely affected by the behavior of investor entities. Stock prices are not just Determined by the intrinsic value of the enterprise, it is still largely affected by the behavior of investors, that is, investor psychology and behavior have a significant impact on the price decision of the securities market and its changes. Its main content can be divided into arbitrage restrictions and Two parts of psychology.

As Kanaman et al. Pioneered the analytical paradigm of "Prospect Theory" and became early pioneers of behavioral finance after the 1980s, the Royal Swedish Academy of Sciences announced in October 2002 that it had awarded Daniel Kana Man and others this year's Nobel Prize in Economics, in recognition of their outstanding contributions to the comprehensive use of economics and psychology theory to explore investment decision-making behaviors, have since opened a new era of great integration of economics and other disciplines.

It can be roughly considered that by 1980, the mansion of the classic investment theory had been basically completed. So far, the research on the laws of the operation of the securities market has not achieved breakthrough progress. After that, scholars from all over the world have only done some repairs and improvements. For example, further research on the factors that affect the rate of return on securities, empirical and theoretical analysis of "different phases" in various markets, modification of assumptions about option pricing, and so on.