Financial theories are frameworks that help explain how financial markets operate and how investors make decisions. These theories provide insights into the behavior of assets, pricing, and risk management. Key concepts include the Efficient Market Hypothesis, which suggests that asset prices reflect all available information, and Modern Portfolio Theory, which focuses on optimizing investment portfolios to maximize returns while minimizing risk. Another important theory is the Capital Asset Pricing Model (CAPM), which establishes a relationship between expected return and risk, helping investors assess the potential return on an investment relative to its risk. These theories guide financial professionals in making informed decisions and understanding market dynamics.