A theoretical bundle of investments that includes every type of asset available in the world financial market, with each asset weighted in proportion to its total presence in the market. The expected return of a market portfolio is identical to the expected return of the market as a whole. Because a market portfolio is completely diversified, it is subject only to systematic risk (risk that affects the market as a whole) and not to unsystematic risk (the risk inherent to a particular asset class).
Let's say the entire world financial market consists of three stocks: those of Company A, Company B and Company C.
- Company A's market capitalization is $1 billion
- Company B's market capitalization is $2 billion
- Company C's market capitalization is $3 billion
The total market portfolio would then consist of the following:
- 17% Company A stock ($1 billion / $6 billion)
- 33% Company B stock ($2 billion / $6 billion)
- 50% Company C stock ($3 billion / $6 billion)
Investment dictionary. Academic. 2012.
Look at other dictionaries:
Market portfolio — is a portfolio consisting of a weighted sum of every asset in the market, with weights in the proportions that they exist in the market, with the necessary assumption that these assets are infinitely divisible. Richard Roll s critique… … Wikipedia
Market portfolio — A portfolio consisting of all assets available to investors, with each asset held in proportion to its market value relative to the total market value of all assets. The New York Times Financial Glossary … Financial and business terms
market portfolio — A portfolio consisting of all assets available to investors, with each asset held in proportion to its market value relative to the total market value of all assets. Bloomberg Financial Dictionary … Financial and business terms
market portfolio — See Markowitz model … Big dictionary of business and management
Excess return on the market portfolio — The difference between the return on the market portfolio and the riskless rate. The New York Times Financial Glossary … Financial and business terms
excess return on the market portfolio — Difference between the return on the market portfolio and the riskless rate. Bloomberg Financial Dictionary … Financial and business terms
Market value added — (MVA) is the difference between the current market value of a firm and the capital contributed by investors. If MVA is positive, the firm has added value. If it is negative, the firm has destroyed value. The amount of value added needs to be… … Wikipedia
Market risk — Categories of financial risk Credit risk Concentration risk Market risk Interest rate risk Currency risk Equity risk Commodity risk Liquidity risk Refinancing risk … Wikipedia
Market Risk Premium — The difference between the expected return on a market portfolio and the risk free rate. Market risk premium is equal to the slope of the security market line (SML), a capital asset pricing model. Three distinct concepts are part of market risk… … Investment dictionary
Portfolio (finance) — In finance, a portfolio is an appropriate mix of or collection of investments held by an institution or a private individual. Holding a portfolio is part of an investment and risk limiting strategy called diversification. By owning several assets … Wikipedia