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3. All rational investors, seeking to manage risk by optimally diversifying across a common set of different assets:

 

  • Only focus on the mean of the overall portfolio.
  • Can ultimately hold different, fully diversified portfolios.
  • Are concerned about by the performance of the riskier assets once they have created the diversifying portfolio.
  • Ultimately earn the same return if they share the same level of risk-aversion.

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