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CML vs CAL

October 20, 2015
Capital Market Line Capital Allocation Line
  • Assumes homogeneous expectations
  • Only one CML
  • Tangency portfolio is the Market portfolio
  • CML is a special case of CAL
  • Assumes heterogeneous expectations
  • The CAL is different for investors with different expectations
  • Investors use different efficient frontiers and tangency portfolios
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