An Asset Theory of Investment Portfolio

If we talk about the portfolio, then we can not be separated from the name of assets, especially in this case the financial asset. As according to Economics Professor Frederic S. Mishkin in his book entitled "The Economics of Money, Banking, and Financial Markets", there are four important factors that determine the demand from some form of asset, namely:

1. Wealth (wealth), is the total from all funding sources that are owned by individuals, including all types of assets. As our wealth increases, tu means we have more sources of funds available to buy assets, and thus the required amount of assets increased. Therefore, the impact of changes in wealth on demand is a positive asset, which means an increase in wealth increases the number of asset demand (ceteris paribus).


2. Expected Return (expected returns), which is the expected return over the next period on an asset relative to other assets. As an analogy, if the expected return of a stock increased compared with the level of deposit rates, then a rational individual would prefer to put their assets in stocks than put it in savings deposits. Thus, increasing expectations of return on an asset relative to other assets will increase the number of assets demanded (ceteris paribus).

3. Risk, is the degree of uncertainty associated with returns on an asset relative to other assets. Usually a high-risk assets will have higher returns. But most people are risk averse, so that if a relative increased risk in assets compared with other assets, the demand for these assets will decrease (ceteris paribus).

4. Liquidity, namely the ease and speed in which the asset can be converted into the form of cash relative to assets. An asset is said to liquid (liquid) if the asset market where trading has a lot of sellers and buyers. So the more liquid an asset relative to other assets, the more desirable asset, and the amount of demand will increase (ceteris paribus).

REMEMBER! In doing an investment, a rational investor to consider all four of the above. And due to the risks faced in each investment decision made investors cautious and carefully analyze and calculate the asset so that investors can consider investing preferences.