PRI announces plans to reimagine, look beyond modern portfolio theory

Examining the limitations of modern portfolio theory (MPT), the PRI has announced a programme of activities designed to analyse and consider the possibilities of investment decision making.

To do this, we will:

  • Offer a £10,000 prize for a new Call for Papers. We will reward research that bridges disciplines and investigates issues such as: time horizons, performance and incentives, valuation, pricing, ownership and information.
  • Bring together evidence and insights that identify the limitations of how MPT is implemented and how investors can address these gaps to reflect the market and world of today.
  • Use the Academic Network Online, our new platform for academics and investors to engage, to encourage the availability of data and financial support for research.

The programme aims to add impetus and direction to the task of identifying limitations of “mainstream” investment decision making and help increase the speed of change by investors to achieve better outcomes for investors and society.

“The world has changed but we haven’t kept up step. We are way behind. We are accepting blind spots but these blind spots are right in front of us,” said Nathan Fabian, director of policy and research, PRI.

Why is the PRI doing this?

The current financial system isn’t operating sustainably and often fails society. We need to realign it to encourage sustainable, equitable economies.
At the PRI’s core is the desire to create and maintain a sustainable financial system. To help us do this, we have spent time analysing the conditions in the financial system that influence the outcomes it produces. The guiding foundations of investment greatly influence the practice of investment – with MPT the most influential of all.
But, developed in the 1950s, many argue MPT is no longer fit for purpose. The rise of the institutional investor, the proximity of investors to markets, and the fact that it fuels transactional behaviour have all led to increasing scepticism about the implementation of the decades-old theory.