Friday, 6 February 2015

What are the differences between capital allocation line CAL and capital market line CML?

What are the differences between capital allocation line CAL and capital market line CML?
CML = CAL for the entire market, assuming everyone has the same mean variance expectations ( E(R), variances, correlations).

CAL is just the CML for individual investors.

CAL and CML both combine the risk free asset with the optimal portfolio, only with CML that optimal portfolio is the market portfolio (tangency point of CML).

No comments:

Post a Comment