Application of the Modern Portfolio Theory in Diversification of the Debt Securities Portfolio in Emerging Markets

The term "portfolio analysis, " introduced in economic theory by Harry Markowitz, is not new in scientific literature. However, analysis and criticism in the papers of local and foreign authors are mainly based on examples of developed capital markets. There are very few cases of portfolio analysis application in the domestic capital market. This paper focuses on implementing diversification of the bonds on the Banja Luka Stock Exchange. Using Markowitz's portfolio selection, we will prove that diversification, including all limitations, is possible and applicable to domestic bonds in the capital market