Agung Listiadi, Rochmawati, Suci Rohayati, Dwi Yuli Rakhmawati, Meylia Elizabeth Ranu, Raya Sulistyowati
This study analyzes stock portfolio theory and its implementation in modern investment practices with a specific focus on the Indonesian capital market. The research employs a descriptive literature review method, drawing upon classical theories such as Markowitz’s Modern Portfolio Theory (MPT), the Capital Asset Pricing Model (CAPM), Arbitrage Pricing Theory (APT), and the Fama-French multifactor models, while also incorporating empirical evidence from contemporary capital market dynamics. Findings highlight that although diversification remains a fundamental principle in reducing unsystematic risk, modern challenges such as irrational investor behavior, market inefficiency, global crises, and behavioral biases—demand adaptive and technology-driven strategies. Advances in data analytics, machine learning, robo-advisors, and algorithmic trading have reshaped portfolio management by enhancing predictive accuracy and operational efficiency. Furthermore, the integration of Environmental, Social, and Governance (ESG) criteria reflects a paradigm shift toward sustainable and responsible investment practices. In the Indonesian context, the rapid growth of retail investors emphasizes the urgent need for financial literacy and portfolio-based decision-making, rather than speculative individual stock trading. Empirical evidence indicates that classical portfolio models face limitations in emerging markets due to liquidity constraints, data scarcity, and psychological biases that often lead to suboptimal investment outcomes. To address these issues, this paper proposes incorporating multifactor models and algorithm-based simulations that integrate both financial and behavioral variables to improve portfolio performance. Overall, the study concludes that while stock portfolio theory continues to provide a robust theoretical foundation for investment management, its practical application in modern markets must evolve integrating technology, behavioral insights, and sustainability considerations to ensure resilience and effectiveness in the increasingly complex financial ecosystem. © 2026, Malque Publishing. All rights reserved.
Department of Economic Education, Postgraduate Program, Universitas Negeri Surabaya, Surabaya, Indonesia
