capital market line

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Capital market line (CML)

The line defined by every combination of the risk-free asset and the market portfolio. The line represents the risk premium you earn for taking on extra risk. Defined by the capital asset pricing model.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Capital Market Line

In the capital asset pricing model, a line that plots the extra return an investor expects for each change in the level of risk. Rational investors expect higher returns for riskier assets and the capital market line shows this graphically. A portfolio that accurately reflects the capital market line is considered a Markowitz efficient portfolio. The slope of the capital market line is a calculation of the equilibrium market price of risk. See also: Beta.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

capital market line

The line used in the capital-asset pricing model to present the rates of return for efficient portfolios. These rates will vary depending upon the risk-free rate of return and the level of risk (as measured by beta) for a particular portfolio. The capital market line shows a positive linear relationship between returns and portfolio betas. Also called market line. See also alpha, beta, systematic risk.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.
References in periodicals archive ?
The problem here is specified as maximising a Lagrange function formed from expression (8), subject to the overall budget constraint equation (6), where the rates of return in the discount factors (F) are taken to be the certainty equivalent values, incorporating the capital market lines for each period from 1 to n, equation (1).
The investor chooses a level of risk which depends directly on the slope of the capital market line and inversely with the risk aversion parameter, h.
The expected rates of return [e.sub.t] can be found by substitution into equation (1), the capital market line. This means that expression (14) can now be written as

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