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Modern Portfolio Theory and Investment Analysis, 7th Edition

Modern Portfolio Theory and Investment Analysis, 7th Edition

ISBN: 978-0-470-05082-8

Dec 2006

752 pages

Select type: Hardcover

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An update of a classic book in the field, Modern Portfolio Theory examines the characteristics and analysis of individual securities as well as the theory and practice of optimally combining securities into portfolios. It stresses the economic intuition behind the subject matter while presenting advanced concepts of investment analysis and portfolio management. Readers will also discover the strengths and weaknesses of modern portfolio theory as well as the latest breakthroughs.

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Chapter 1. Introduction.

Chapter 2. Financial Securities.

Chapter 3. Financial Markets.


Section 1. Mean Variance Portfolio Theory.

Chapter 4. The Characteristics of the Opportunity Set Under Risk.

Chapter 5. Delineating Efficient Portfolios.

Chapter 6. Techniques for Calculating the Efficient Frontier.

Section 2. Simplifying the Portfolio Selection Process.

Chapter 7. The Correlation Structure of Security Returns: The Single-Index Model.

Chapter 8. The Correlation Structure of Security Returns: Multi-Index Models and Grouping Techniques.

Chapter 9. Simple Techniques for Determining the Efficient Frontier.

Section 3. Selecting the Optimum Portfolio.

Chapter 10. Estimating Expected Returns.

Chapter 11. How to Select Among the Portfolios in the Opportunity Set.

Section 4. Widening the Selection Universe.

Chapter 12. International Diversification.


Chapter 13. The Standard Capital Asset Pricing Model.

Chapter 14. Nonstandard Forms of Capital Asset Pricing Models.

Chapter 15. Empirical tests of Equilibrium Models.

Chapter 16. The Arbitrage Pricing Model APT—A New Approach to Explaining Asset Prices.


Chapter 17. Efficient Markets.

Chapter 18. The Valuation Process.

Chapter 19. Earnings Estimation.

Chapter 20. Behavioral Finance, Investor Decision Making, and Asset Pricing.

Chapter 21. Interest Rate Theory and the Pricing of Bonds.

Chapter 22. The Management of Bond Portfolios.

Chapter 23. Option Pricing Theory.

Chapter 24. The Valuation and Uses of Financial Futures.


Chapter 25. Evaluation of Portfolio Performance.

Chapter 26. Evaluation of Security Analysis.

Chapter 27. Portfolio Management Revisited.


  • New Chapter 20: Behavioural Finance – details the progress in understanding the nature of individual decision making and, in particular, using behavioural theory to understand nonrational decision making and its impact on capital markets
  • Chapter 10 on forecasting expected returns, a key input to portfolio management, has also been added.  This chapter draws on the latest research on forecasting methodology.
  • The two sixth edition chapters on utility analysis and other selection rules have been completely rewritten and combined into chapter 11 on alternative methods for selecting the optimal portfolio.  In addition, new material on value at risk and the use of simulation has been added to the chapter
  • Several other chapters have been substantially revised. These include Chapters 15 and 16 on the multiple index models and tests of capital and pricing models.  The chapter on the evaluation of portfolio performance, now Chapter 25, has been updated and extensive new material on mutual fund performance has been added. 
  • Offers more problems so that readers can test their knowledge.
  • Provides additional charts and graphs to help simplify equations


"This is a good book for someone wanting to get a good understanding of the technical aspects of the portfolio theory. It tends to explain the concepts clearly rather than just put in the technical formulas and is really good for someone wanting to understand the technical side of the investment theory without wanting to be bogged down with calculas."

"In terms of describing the construction of efficient portfolios, it is the best treatment I have seen."

  • Integrates real-world examples throughout the pages to reinforce important concepts.
  • Shows how to apply modern tools such as equilibrium theory to the management of a portfolio.
  • Includes up-to-date material and new topics such as behavioral finance.