What is the market portfolio?

The

market portfolio is a theoretical portfolio in which each available type of asset is included at the level of its market value. The investment portfolio, which is a group of investment, is owned by one individual or organization. Typical may include a number of assets, but usually do not include all types of assets. However, the market portfolio literally includes any asset that exists on the market.

The market value of the investment is described as its current market price. The term is also used to link to the amount for which the asset could probably be sold again. In the market portfolio, investments are held in relation to their market values ​​in relation to the full value of all assets included.

This concept is often discussed only theoretically. For investment purposes, a real person would have to include every conceivable asset and as such would cover the world market. The concept is important in various financial theories, including modern portfolio theory (MPT). AccordingThey were to focus on the selection of portfolios based on the overall concepts of reward for risk than focusing on the attraction of individual securities.

MPT includes the concept of the effective boundary on which the market portfolio is located. The effective boundary introduced by Harry Markowitz, a pioneer of MPT, is a group of optimal portfolios, which is used to maximize the expected return for the level of risk. Sharpe ratio is a term used to indicate the level of additional return offered by the portfolio in relation to the level of risk. The market portfolio or super efficiency has the highest Sharpe ratio to an effective limit.

In combination with a risk -free asset, it is said that the market portfolio creates a return over an effective limit. The risk asset is a hypothesatic concept. In essence, this portfolio would ensure a higher return than a more risky portfolio on the border.