The market portfolio is always suboptimal, is the central prediction of CAPM, which an index model can be used to test
What is a Market portfolio?
- The term "market portfolio" refers to a portfolio that includes the weighted total of each item traded on the market, with the required supposition being that these assets are endlessly divisible.
- A market portfolio is a hypothetical collection of assets that comprises every asset type that is accessible to investors, with each asset weighted in proportion to its overall market participation.
- A market portfolio's anticipated return is the same as the market's anticipated return overall.
- The main CAPM prediction is that the market portfolio is always suboptimal, and an index model can be used to test this.
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