Market portfolio

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The market portfolio M

The market portfolio consists of the weighted sum of each investment in the market. It is the best possible diversified portfolio in portfolio theory or in the Capital Asset Pricing Model (CAPM), which is independent of the risk-return preference of the investors. The market portfolio is consequently on the efficiency frontier and is at the same time the tangential portfolio to the capital market line . The capital market line can then be formed using a combination of the risk-free investment and the market portfolio. In the CAPM, the market portfolio by definition has a beta ( ) ${\displaystyle \beta }$ of one and, due to the perfect diversification across all investments, only shows systematic risk ( market risk ).

In the market model according to Sharpe (1963), the market portfolio is an indefinite general market factor that can be approximated using a stock index.

As part of the CAPM and assuming the market clearance, the Tobin separation leads to the tangential portfolio being identical to the market portfolio.

Individual evidence

1. ^ Bimberg, Mathias Cyril. Company takeovers and purchase offers in Germany. Springer Fachmedien, 2009. p. 107.
2. ↑ Zhu, Mei. Insurance securitization with catastrophe bonds: with special consideration of their influence on the economic target capital. Vol. 12. Verlag Versicherungswirtsch., 2009. P. 109.