Can anyone help me explain this: Capitalization-weighted market portfolio is mean-variance efficient, meaning that it offers the highest return for a given level of risk.
Lots of people say this.
I’m not aware of any reason this should be the case.
Thanks Magician. I guess the market-cap-weighted is mean-variance efficient only in efficient market.
I don’t know about that.
It seems to me that that would suppose two unlikely situations:
- For a given investment, all investors have the same expected return and expected standard deviation of returns, and
- All investors want mean-variance efficient portfolios.