The Real-World Lessons From Investment Theory
by William Reichenstein
Do investment academics live in a theoretical cloud divorced from real-world practices? That accusation is sometimes leveled at the academic community, particularly by investors who are unfamiliar with the theories and how they have been applied in practice.
In fact, modern investment theory—or, to be more academically precise, Modern Portfolio Theory (MPT)—is the accepted approach to investment and portfolio management in todays day and age. Its investment implications are embedded in the portfolios of major mutual fund families and the advice given by well-known and respected investment advisers and scholars. You may even be following some of the implications yourself without even knowing it.
Just what is MPT?
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