Portfolio Theories

Theories of money demand that forms the role of money as store of value are called portfolio theories. According to this theory individual hold money as a part of their portfolio of assets. Money offers different combinations of risk and return as compared to other assets. In particular, money offers safe nominal returns whereas other assets like bonds, shares have fluctuating prices. Therefore, some economists suggest that people choose to hold money as a part of their optimal portfolio. Portfolio theories predict that demand of money depends upon risk and return offered by money and various other assets.