List down theories directly related to Investment

Investing is a complex field that encompasses various theories from finance, economics, psychology, and behavioral science. Here are some key theories directly related to investment:

**Modern Portfolio Theory (MPT)**: Developed by Harry Markowitz, this theory emphasizes the importance of diversification and the trade-off between risk and return in creating an optimal investment portfolio.

**Capital Asset Pricing Model (CAPM)**: Introduced by William Sharpe, CAPM describes the relationship between systematic risk and expected return, providing a formula to determine an investment's expected return based on its risk relative to the market.

**Efficient Market Hypothesis (EMH)**: Proposed by Eugene Fama, this theory suggests that financial markets are "informationally efficient," meaning that asset prices reflect all available information at any given time, making it impossible to achieve consistently higher returns than the overall market.

**Arbitrage Pricing Theory (APT)**: This theory, developed by Stephen Ross, provides a multifactor model to determine the fair value of an asset based on its relationship to various macroeconomic factors and risk exposures.

**Behavioral Finance**: This area examines the psychological influences and biases that affect investor behavior, challenging the notion of rationality in standard financial theories. Key concepts include overconfidence, herd behavior, and loss aversion.

**Dividend Discount Model (DDM)**: This model estimates the value of a stock based on the present value of its expected future dividends. It is particularly useful for valuing companies that pay consistent dividends.

**Discounted Cash Flow (DCF) Analysis**: This valuation method estimates the value of an investment based on its expected future cash flows, discounted back to their present value using a required rate of return.

**Fama-French Three-Factor Model**: This model expands on CAPM by including size and value factors, suggesting that small-cap stocks and those with high book-to-market ratios tend to outperform the market.

**Random Walk Theory**: This theory posits that stock price movements are random and unpredictable, suggesting that past price movements cannot be used to predict future price movements.

**Mean-Variance Optimization**: This method involves selecting a portfolio of assets that minimize risk for a given level of expected return, or maximize return for a given level of risk, based on the principles of MPT.

**Real Options Theory**: This approach applies option pricing concepts to investment decisions, recognizing the value of managerial flexibility in investment opportunities and the ability to make decisions in response to changing market conditions.

**Prospect Theory**: Developed by Daniel Kahneman and Amos Tversky, this behavioral economic theory describes how people make decisions based on perceived gains and losses rather than final outcomes, influencing investment choices.

These theories provide a foundational understanding of various investment strategies, portfolio management, and market behavior, guiding investors in their decision-making processes.