Investors, whether they are individuals or institutions, may choose to hold “portfolios”, which is a fancy name that means “a collection of various securities”. Much of the innovation in investment research over the past 40 years (since Harry Markowitz presented his dissertation) has been the development of a theory of portfolio management. The question it attempts to answer is, “What rate of return will you demand in order to hold a risky security in your portfolio?” To answer this question, we first must consider what type of investor you are (what objectives you have), how to define return, and how to define risk. ... (full story)