How does the Efficient Market Hypothesis relate to Modern Portfolio Theory?

The Efficient Market Hypothesis (EMH) complements Modern Portfolio Theory by asserting that asset prices fully reflect all available information. According to EMH, it's impossible to consistently achieve returns exceeding the average market returns on a risk-adjusted basis. Modern Portfolio Theory provides a methodology for assembling a diversified portfolio that aligns with an individual's risk tolerance and the efficient market. Together, they form a foundational concept in finance. While investors can't consistently outperform the market, they can optimize their risk-return balance through diversification.

Interview Questions Asset Pricing EMH vs. MPT

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EMH vs. MPT

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Title	Category	Subcategory	Difficulty	Status
Impact Rate Changes	Asset Pricing	General	Medium	Unlock
Modern Portfolio Theory (MPT)	Asset Pricing	General	Easy	Example

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