Why is the risk of a portfolio of shares normally lower than the average risk of the shares of the portfolio?
Date Submitted: 11/28/2004 13:39:15
Category: / Business & Economy / Economics
Length: 8 pages (2146 words)
Category: / Business & Economy / Economics
Length: 8 pages (2146 words)
On a general level, investment managers and academic economists have long been aware of the necessity of taking returns as well as risk into account: "all your eggs should not be placed in the same basket". This is where the idea of holding a portfolio of shares comes from. Modern portfolio theory (MPT), or portfolio theory, was introduced by Harry Markowitz with his paper "Portfolio Selection" which appeared in the 1952 Journal of Finance. Thirty-eight years …
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…that may be used by investors to reduce share price risk including holding Options, Dollar Cost Averaging, holding Mutual funds, using the Buy and Hold method and the various techniques of asset allocation.
Bibliography
P. A. Collier, Financial and treasury management: stage 4, Oxford: Heinemann Professional, 1988
James L. Bicksler, Paul A. Samuelson, Investment portfolio decision-making, D.C. Heath, 1974
Frank K. Reilly, Investment analysis and portfolio management, 6th Edition, Dryden, 1999
Websites:
www.businessweek.com
www.axaonline.com
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