Part of the funds are composed of risk-free assets and part of the funds are market securities portfolio. All investors hold a portfolio consisting of risk-free assets and market securities. This theoretical result is called the separation theorem of two funds.
The significance of the capital separation theorem The double capital separation theorem means that any two separated points represent two separated effective portfolios on the effective boundary of all venture capital portfolios.
The efficient portfolio at any other point on the efficient portfolio boundary can be generated by the linear combination of the efficient portfolio represented by these two separation points. The separation theorem of the two funds shows that the determination of the optimal portfolio of risky assets has nothing to do with the risk preference of individual investors. The determination of the optimal portfolio only depends on the expected rate of return and standard deviation of various possible venture portfolios.
The theory of capital separation and the theory of meaning separation enable investors to make decisions without considering the risk behavior of individual other investors. More precisely, the information of securities price can determine the income it deserves, and investors will make decisions accordingly. This conclusion is of great significance to the formulation of investment strategy.
Extended data
Investors' preference for risk and return can determine the optimal combination of their risky assets. The separation theorem can also be expressed as that the determination of the optimal portfolio of risky assets has nothing to do with investors' risk preference. Depending on the expected rate of return and standard deviation of various possible risk combinations. Personal investment behavior can be divided into two stages: first, determine the best combination of risky assets.
Then consider the ideal combination of risk-free assets and the best risk asset portfolio. Only the second stage is affected by investors' risk aversion, and only in the second stage can investors decide whether to raise funds, while the first stage, that is, when determining the best risk asset portfolio, is not affected by investors' risk aversion. The decision theory about the separation of investment and financing is called the separation theorem.
Baidu Encyclopedia-Separation Theorem of Two Funds