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1 year, 4 months ago
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Basic financial questions are off-topic as they are assumed to be common knowledge for those studying or working in the field of quantitative finance.
Except for the fact that in equilibrium demand must equal supply, I do not understand why, by chance, this tangency portfolio is the market portfolio. Do you have any idea?
Feb 2, 2022 at 20:49
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The tangency portfolio is the portfolio which maximises the Sharpe ratio in the Markowitz setting. It is assumed that all participants in this setting are rational agents and maximizing the Sharpe ratio is a rational choice hence everyone would opt to choose this portfolio weighting. Since everyone (the whole market) has this portfolio weighting, we also call it the market portfolio.
Feb 3, 2022 at 5:59
Julie Taylor Julie Taylor
291 1 1 silver badge 11 11 bronze badges
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