A Study In Portfolio Diversification Risk In Art Investment Fund

Modern Portfolio Theory (MPT) was founded in early50’s of last century, the theory tried to quantify the risk of a investment asset, and put the risk factors into investor’s consideration. The theory made huge impact on both financial theory and investment practice. For the theory side, Capital Asset Pricing Model (CAPM), single factor capital asset pricing model, multi-factor capital pricing model are all based on the modern portfolio theory. For the investment practice side, portfolio allocation of mutual fund, index-based funds, the rise of alternative investment are also related with theory.This thesis investigates the development of modern portfolio theory and investment practice, tries to explain how it was applied into art investment fund, and discusses the application of the modern portfolio theory into the art market for both theory and practice areas.From the study of application of the modern portfolio theory into art investment, this thesis tries to figure out the limitation of modern portfolio theory when it apples into the art investment practice, and to clear the path the development of art as an asset class in the future.