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2017 | OriginalPaper | Chapter

2. Investors’ Portfolio Choice and Portfolio Theory

Authors : Ted Lindblom, Taylan Mavruk, Stefan Sjögren

Published in: Proximity Bias in Investors’ Portfolio Choice

Publisher: Springer International Publishing

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Abstract

This chapter introduces modern portfolio theory by first following the work of Markowitz and discussing how an optimizing investor would behave. Second, the chapter reviews the portfolio theory that is concerned with economic equilibrium assuming all investors optimize in the particular manner, the work by Sharpe and Lintner on capital asset pricing model (CAPM). The chapter also discusses the ways in which portfolio theory differs from the theory of the firm and the theory of the consumer behavior. Although diversification is a common and reasonable investment practice, understanding how uncertainty influences investments in these different markets is essential to the analysis of rational investment behavior.

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Literature
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Metadata
Title
Investors’ Portfolio Choice and Portfolio Theory
Authors
Ted Lindblom
Taylan Mavruk
Stefan Sjögren
Copyright Year
2017
Book
Proximity Bias in Investors’ Portfolio Choice

Print ISBN: 978-3-319-54761-9

Electronic ISBN: 978-3-319-54762-6

Copyright Year: 2017

DOI
https://doi.org/10.1007/978-3-319-54762-6_2