Post-modern portfolio theory or PMPT is defined as the extension of traditional theory of modern portfolio. The theory mainly proposes that the rational investors need to use the process of diversification in order to optimize the portfolios and the ways by which the risky assets have to be priced. The post-modern portfolio based theory was developed in the year 1991 by two major software entrepreneurs Kathleen Ferguson and Brian M. Rom. The post-modern portfolio theory is quite different from the modern portfolio theory. The major difference lies between returns that have been earned from the assets that are a part of the portfolio. The internal rate of return or IRR is considered to be a major link between the liabilities and the assets. PMPT is mainly used for the purpose of measuring the risks based on dispersion based on the mean or the average returns as well. The results that are obtained with the implemented of the two portfolio theories are considered to be quite different from each other.
The major books that can provide information based on the concept of Post-modern portfolio theory include, Postmodern Portfolio Theory: Navigating Abnormal Markets and Investor Behavior (Quantitative Perspectives on Behavioral Economics and Finance) by James Ming Chen, Multi-Market Antitrust Economics (Quantitative Perspectives on Behavioral Economics and Finance) by Scott Gilbert, Finance and the Behavioral Prospect: Risk, Exuberance, and Abnormal Markets (Quantitative Perspectives on Behavioral Economics and Finance) 1st ed. 2016 Edition by James Ming Chen, Active Portfolio Management by Richard Grinold & Ronald Kahn, Behavioral Portfolio Management by Thomas Howard, Portfolio Management under Stress by Riccardo Rebonato & Alexander Denev, Investment Analysis and Portfolio Management by Frank K. Reilly & Keith C. Brown, Portfolio Management for New Products: Second Edition by Robert G. Cooper, Scott J. Edgett & Elko J. Kleinschmidt, Investment Leadership and Portfolio Management: by Brian D. Singer & Greg Fedorinchik.
Post-modern portfolio theory is mainly developed with the help of a deep relationship which is formed between the advisor and the clients. The conversation in this case mainly focusses on experience of the clients rather than the statistical metrics. The process of portfolio construction is able to integrate the return and risk based objectives within the implementation, design, ongoing measurement and proper management of the portfolio as well. Post-modern theory is considered to be more quantitative and less subjective in nature. The approach mainly focusses on the construction of outcome related portfolio that has the benefits for the advisors and the clients as well. This is considered to be a highly quantitative approach which is mainly built on the consultative and deep relationship which is formed among the advisors and clients. The conversation is mainly based on the portfolio based experience that is provided to the clients. The sense related to self-advocacy that has a major emphasis by advisor on the proper management to mandate and not a market. The major focus is on the risk that is related to the development of portfolio and the not only the return that is gained from the reconciliation of the factors based on behavioural finance. The proper blend of the cognitive theory psychology is considered to be based on the conventional capital market based theory. A major distinction has been drawn between the modern portfolio theory and post-modern portfolio theory based concepts. The differences have been able to play a major role in the ways by which the theories can have an impact on the relationships that have been developed between the clients and the advisors.
The post-modern portfolio theory is mainly based on the “experience-based” and thorough approach that can be utilized in order to communicate the risks in the multi-asset portfolio. The illiquidity of the portfolio theory is able to permeate the complex strategies in an effective way. The moments based on the return distribution can be incorporated and the non-normality based return distributions are mainly taken into considerations. The risk based experience is mainly understood with the help of measurements that are related to the frequency, duration, depth and the recovery time related to loss that is utilized effectively. The investment policy related statement for the portfolio is considered to be a major element that is a part of the post-modern portfolio theory. The client can also relate to the acceptable returns and the loss mainly range from the various market based scenarios. The experience related metrics are used in order to develop the portfolio which is used in order to measure the success in a quantitative and simple framework.
The traditional analysis of portfolio is considered to be highly subjective in nature and provided success to the individuals who made the investments with the help of analysis of the individual securities through the evaluation of the risks and return conditions in each of the security. The investor is also able to receive maximum levels of return at low risk in order to develop the return position in an effective manner.
The modern portfolio theory on the other hand is mainly based on the proper maximization of the returns with the help of proper combination of different securities. This theory mainly discusses the relationship between the different securities and also draws the inter-relationships of the risks that exist between them.
Our expert will be able to provide with major knowledge based on the post-modern portfolio theory related topics. The proper understanding related to these topics will be provided to you so that you are able to get knowledge based on the theories, their differences and the different usage of the theories as well. The experts will also help you with the detailed view of the post-modern theory and the difference that it has from the modern portfolio theory.
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