Construction and Management of Investment Portfolios: Theory, Practice, and Contemporary Challenges

Abstract

This paper provides a comprehensive examination of the theory and practice of constructing and managing investment portfolios. Drawing on Modern Portfolio Theory (MPT), the Capital Asset Pricing Model (CAPM), and contemporary multi-factor frameworks, the paper explores asset allocation strategies, risk measurement and management, portfolio optimisation techniques, and performance evaluation. It further addresses the behavioural biases that distort investor decision-making and the practical challenges faced by portfolio managers in dynamic market environments. The paper concludes with an integrative discussion of how institutional and individual investors can construct portfolios that align with their return objectives and risk tolerance, while accounting for transaction costs, liquidity constraints, and regulatory considerations.