Dear tutors Hope you are well and had a good weekend! I am reading page 7 of ch8, i am unable to understand why M is the Market portfolio which contains all shares of the market. The example at the bottom of this page, where it says if investor 1 holds 5% in Vodafone than so must investor 2 etc. Why? Is that because they all have the same views towards all securities? But then how does alpha % make sense. Thanks! Jun
Yes, under CAPM all investors have the same market expectations hence hold the same market portfolio, so it must be market cap weighted. I don’t know what you mean by “how does alpha % make sense” - please could you explain what you mean?
