Application Analysis of Portfolio Theory in Financial Markets

Abstract

Based on portfolio theory, this paper reviews and summarizes the role of investors and examines two aspects of portfolio theory: the mean variance analysis method and the efficient limit model of the portfolio. And its limitations are analyzed. So that investors can invest better. Indifference curves vary from person to person, and deviations will likely affect the resulting final maximum utility point. Although the research on financial market risk has been relatively mature, there are still some puzzles to be solved in the effective measurement of risk. Markowitz takes the ROI as a representation of ROI and the variance as a representation of ROI, which solves the problem of measurement of asset risk. He thinks that most investors are risk-averse; they will try to avoid risk at the same time as they seek high returns. Therefore, Markowitz has proposed a portfolio investment theory based on the analysis of the mean variance.