What is a market portfolio?
A market portfolio is a speculative cluster of investments that include every various asset available in the global financial market, with each asset measured in proportion to its total ubiquity within the market.
Where have you heard about market portfolios?
In Richard Rolls’ critique it states that this term can only be a theoretical notion. This is because the practice of making a market portfolio for investment purposes would have to involve every possible asset, including every type of alternative asset, as the theoretical market would be the world market.
What you need to know about market portfolios..
There many different school of thoughts on whether the index in a market portfolio is of any real significance, as many indexes will give similar results. Roll believed that it did matter which index was used and proved that different indexes did indeed garner very different results. He argued that by choosing your indexes carefully, you could get any ranking you desired. There was a study by Brown and Brown which analysed this. They used a variety of indexes, for example stocks and bonds, stocks alone, stocks and bonds plus real estate. They concluded that the use of real estate did produce very different results.