Statement of the CAPM
The assumptions of the CAPM (stated two slides ago) imply:
Mutual Fund Theorem
: All investors hold a combination of the
risk-free asset, f , and the same risky portfolio, p. In particular,
all investors hold the risky assets in the same proportion. Thus,
the total investment in risky asset i relative to risky asset j is
, where w
denote their shares in portfolio, p.
The main result of the CAPM
: In equilibrium, the market
portfolio is the optimal risky portfolio, i.e., m
di/erently, the market portfolio, m, is mean-variance e¢ cient.
John Y. Campbell
September 23, 2014
32 / 44