1. Financial Markets – Fall, 2019 – Sept 17, 2019

2. Main Conclusion of Markowitz Theory
Mean
Boundary of “feasible” portfolios
“Efficient” Portfolios σ σ

3. Tobin’s Result Mean Use of Leverage E Risk Free Asset
Standard Deviation

4. The Capital Asset Pricing Model
Markowitz – mean, variance analysis
Tobin – the role of the risk-free rate
Sharpe (and others) – beta and the market basket

5. CAPM – two conclusions M – the “efficient” basket
The pricing rule based upon “beta”
Bill Sharpe

6. Capital Market Line M Rf Mean What is M ?
Answer: contains all “positively”
priced assets, weighted by their
“market” values. Rf
STDD

7. i = Rf + i [M – Rf] Security Market Line i M Mean Rf
Beta 1

8. The End