Finance 1

Finance 1: Portfolio Theory and Management provides a comprehensive introduction to modern portfolio theory and investment analysis. Combining academic rigor with practical relevance, the book aims to help readers understand how financial markets function and how sound long-term investment decisions are made.

The text begins with an introduction to financial markets, financial instruments and the statistical concepts required for risk measurement. It then develops the foundations of modern portfolio theory, including the Markowitz framework and its limitations (a topic often neglected in textbooks), index models, multifactor models and recent developments in factor investing. Particular attention is paid not only to the theoretical foundations of portfolio construction but also to their strengths, limitations and practical implementation.

Further topics include equilibrium pricing models such as the Capital Asset Pricing Model and the Arbitrage Pricing Theory, market efficiency, return predictability, security valuation and professional portfolio management. Compared with the previous edition, the book contains substantially revised and expanded coverage of factor investing, modern risk factors across equities, bonds, currencies and digital assets, and a redesigned treatment of the term structure of interest rates.

Throughout the book, numerous examples and practice-oriented discussions help bridge the gap between financial theory and real-world investment decisions. A distinctive feature of the second edition is its integration with the companion YouTube channel @MichaelFrommelFinance, where readers can access supplementary explanations, worked examples and additional learning material through QR codes embedded throughout the text.

Written for undergraduate and graduate students in finance, economics and business, the book also serves as a valuable resource for practitioners seeking a structured introduction to portfolio management and investment analysis.