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The Role of Risk in Industry Analysis

In: Modern Portfolio Theory and Financial Institutions

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  • J. Aldersley

Abstract

Modern portfolio theory has played an important role in concentrating the attention of professional investors on the need to control risk. Since professionals invest on behalf of a great variety of institutions and individuals, they would ideally like to be able to discuss risk in a systematic and quantifiable way. Although the pressure for change in the U.K. has not been so great as within the U.S.A., where the introduction of ERISA has provided legal impetus for investment managers to adopt an acceptable method of risk measurement, there has nevertheless been a gradual transition towards “accountability” and “risk-adjusted” performance in the U.K. Yet there remains a wide divergence between the theoretical principles and the practical methodology of portfolio investment. One of the most important ways in which this divergence manifests itself lies in the contrast between the recommended market approach of theory and the concentration by practitioners on sectors and individual share selection.

Suggested Citation

  • J. Aldersley, 1983. "The Role of Risk in Industry Analysis," Palgrave Macmillan Books, in: Desmond Corner & David G. Mayes (ed.), Modern Portfolio Theory and Financial Institutions, chapter 5, pages 95-107, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-05843-3_5
    DOI: 10.1007/978-1-349-05843-3_5
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