Schweser is saying that there is a typo in the cfa curriculum but then in the exercises it says something different. I thought the market portfolio minimizes diversifiable risk?
thanks in advance.
The hypothetical market portfolio is composed of all available securities. By owning all available securities you cannot be any more diversified, therefore you have minimised diversifiable risk, or unsystematic risk. That leaves the portfolio exposed to systematic or market risk.
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CFAI corrected it in the Level 3 errata. “In financial theory, it is the portfolio that minimizes diversifiable risk, which in principle is uncompensated. ”
Hi all, concept checker 8 in schweser asks: which of the following statements is most correct regarding the global market portfolio as the baseline portfolio in asset allocation?
Wrong answer according to schweser: The market portfolio minimizes diversifiable risk since it is the most diversified portfolio.
Could somebody please explain to me why exactly this is a wrong answer?
Many thanks!