Advances in Economics, Management and Political Sciences
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Proceedings of the 2nd International Conference on Financial Technology and Business Analysis
Series Vol. 60 , 05 January 2024
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Limitations and Critique of Modern Portfolio Theory: A Comprehensive Literature Review
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Abstract
This paper employs a systematic literature review approach to select and summarize 12 papers published within the past five years. It critically assesses the limitations of Modern Portfolio Theory (MPT), including its reliance on the assumptions of a strong, efficient market, rational investor behaviour, and excessive dependence on historical data. Furthermore, the paper explores how emerging theories such as Behavioral Portfolio Theory (BPT) and Behavioral Finance offer remedies for the deficiencies in traditional investment theories. Through a comprehensive review of relevant literature, the study delves into the strengths and applications of these theories and investigates whether they can offer more rational and adaptable investment strategies for investors and decision-makers. The authors assert that the emergence of these emerging theories expands the range of choices and possibilities within the field of finance, potentially assisting investors in better navigating market uncertainties and complexities while enhancing the effectiveness of investment decisions. Consequently, this research underscores the significance of considering emerging theories in portfolio construction to adapt to the ever-changing financial landscape.
Keywords
portfolio theory, limitation, behaviour finance
References
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Data Availability
The datasets used and/or analyzed during the current study will be available from the authors upon reasonable request.
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- Volume Title
- Proceedings of the 2nd International Conference on Financial Technology and Business Analysis
- ISBN (Print)
- 978-1-83558-211-4
- ISBN (Online)
- 978-1-83558-212-1
- Published Date
- 05 January 2024
- Series
- Advances in Economics, Management and Political Sciences
- ISSN (Print)
- 2754-1169
- ISSN (Online)
- 2754-1177
- DOI
- 10.54254/2754-1169/60/20231148
- Copyright
- 05 January 2024
- Open Access
- This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited