Capital Market Theory is the theory developed in the 1960s and made popular by William Sharpe. It piggybacked on Modern Portfolio Theory but added a risk-free asset to portfolio mix. This allowed investors to build portfolios with two components: the risk-free asset, like Treasury Bills, and a Market portfolio which maximizes the return-over-risk ratio of all risky assets. This changed portfolio choice from the efficient frontier to the straight line from the risk-free rate to the Market portfolio, and the concept of multi-asset-class allocation was born.
Doc: Who else was working independently on
the Capital Market
Mia: I know. Jack Treynor, John Lintner and Jan Mossin.
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