REVISITING INSTRUMENTS TO ENSURE THE EFFICIENCY OF INVESTMENT FUNDS

Abstract

Portfolio theory was developed by Harry Markowitz in 1952. The main idea of portfolio theory is to diversify investments across a number of different assets, which reduces the risk associated with investments. Investments can be diversified across different asset classes such as stocks, stock indices, bonds, and bank deposits. Diversification can be expanded within an investment, for example by selecting more than one company's stocks to build a portfolio. When investing in stocks, significant diversification benefits can be obtained by investing in even a small number of different stocks.

For a diversified portfolio, the return and standard deviation of the return can be calculated by building a portfolio of several different securities and giving them different weights. These figures can be presented as a graph showing combinations of expected returns and standard deviations for various portfolios.

The CAPM model is a financial theory developed in the early 1960s based on Harry Markowitz's portfolio theory. According to the theory of the CAPM model, an investor expects to receive higher returns from stocks that contain more market risk. In the CAPM model discussed above, one of the key factors of influence is a risk-free asset, which in practice can be a government bond or a bank deposit.

The level of return on such assets fluctuates in practice, which confirms the hypothesis that risk-free assets are subject to market risk. The model assumes the absence of such a risk and is single period, which must be taken into account when conducting investment analysis.