Separation theorem
The value of an investment to an individual is not dependent on consumption preferences. All investors will want to accept or reject the same investment projects by using the npv rule, regardless of personal preference. |
Similar financial terms
Two-fund separation theoremThe theoretical result that all investors will hold a combination of the risk-free asset and the market portfolio.
Separation property
The property that portfolio choice can be separated into two independent tasks: (a) determination of the optimal risky portfolio, which is a purely technical problem, and (b) the personal choice of the best mix of the risky portfolio and the risk-free asset.
Portfolio separation theorem
An investor's choice of a risky investment portfolio is separate from his attitude towards risk.
Spot futures parity theorem
Describes the theoretically correct relationship between spot and futures prices. Violation of the parity relationship gives rise to arbitrage opportunities.
Mutual fund theorem
A result associated with the CAPM, asserting that investors will choose to invest their entire risky portfolio in a market-index or mutual fund.
