Fins2624: Question on the market portfolio (1 Viewer)

[studymon]

In the textbook it says that:

The optimal risky portfolio of all investors is simply a share of the market porfolio.

i dont get why and how this can be...what is the market portfolio?...could someone please explain?

and is the tangency portfolio the market porfolio? OR is the tangency portfolio a portfolio whose weightings in the risky and the risk-free asset a duplicate of the market porfolio's???

studymon,

 

[schmeichung]

The concave curve is a series of optimal risky portfolio without the presence of riskless asset. The tangency of the curve is the combination of optimal risky portfolio and riskless asset. The touching point is when the weighting of riskless asset is 0%.

Market portfolio is optimal in the sense that it gives out the most diversification benefit among other portfolio. (Not too sure about this though)

 

[studymon]

i get what you are saying, but i dont understand why 'the touching point is when the weighting of the riskless asset is 0%'....i thought the tangency portfolio consisted of a portion of risky and risk-free assets..............isnt it?

edit: actually...i get that now!!