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Modern Portfolio Theory and the Efficient Markets Hypothesis: How well did they serve Canada?s baby-boom generation?

Author

Listed:
  • Jim Fischer

    (Mount Royal University)

Abstract

Modern Portfolio Theory (MPT) and the Efficient Markets Hypothesis (EMH) have had considerable influence over portfolio management strategies for the last forty years. This is also the time that the bulk of the baby boom generation entered and started to retire from the work force. Taking the example of an average Canadian family from 1977 to 2016, this paper examines how well the tenets of MPT and EMH served this generation of investors. A model investing strategy was constructed based on the principles of MPT and EMH. The results of this strategy were evaluated for the portfolio?s ability to adequately provide for the subject couple?s financial needs in retirement. Results of the model portfolio were compared to other popular investment alternatives. Using generally-accepted rules-of-thumb in financial planning, the model portfolio was found to have provided an adequate retirement income for the subject couple. Some of the other strategies moderately exceeded the returns of the model portfolio, while others underperformed this benchmark. Analysis of these discrepancies reinforced the significance of diversifying among and within asset classes, and of rebalancing portfolios through dynamic asset allocation.

Suggested Citation

  • Jim Fischer, 2019. "Modern Portfolio Theory and the Efficient Markets Hypothesis: How well did they serve Canada?s baby-boom generation?," Proceedings of Economics and Finance Conferences 9511941, International Institute of Social and Economic Sciences.
    • Handle: RePEc:sek:iefpro:9511941
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    File URL: https://iises.net/proceedings/12th-economics-finance-conference-dubrovnik/table-of-content/detail?cid=95&iid=006&rid=11941
    File Function: First version, 2019
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    Cited by:

    1. Cem Berk & Bekir Tutarli, 2021. "The Effect of Systematic Risk and Previous Period Returns on Portfolio Selection," Applied Finance and Accounting, Redfame publishing, vol. 7(1), pages 1-9, February.
    2. Serkan Atmaca & Hacı Ahmet Karadaş, 2020. "Decision making on financial investment in Turkey by using ARDL long-term coefficients and AHP," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 6(1), pages 1-22, December.

    More about this item

    Keywords

    Modern Portfolio Theory (MPT); Efficient Markets Hypothesis (EMH); baby-boom generation; indexing; portfolio management;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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