The Strategic ETF Investor by Scott Frush

Author:Scott Frush [Frush, Scott]
Language: eng
Format: epub
Publisher: McGraw-Hill Education
Published: 2012-04-03T04:00:00+00:00

Figure 6-1 Investment Alternatives and Rational Decisions

Additionally, MPT introduces the concept of correlation and stresses how it enhances the risk and return profile of a portfolio. The Employee Retirement Income Security Act of 1974, which governs the management of pension funds, emphasizes this point, thus essentially endorsing MPT. Harry M. Markowitz, who was awarded the Nobel Prize in Economics in 1990, is considered the “father of modern portfolio theory” for this work.

Finally, the efficient market hypothesis asserts that capital markets are “informationally efficient,” meaning one cannot achieve excess risk-adjusted returns consistently over time since the information relied upon to make such a decision is publicly available at the time the investment is made.

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