What is the difference between the CAL (Capital Accumulation Line ) and the CML (Capital Market Line)?

1	academic asked Aug 15 '10 at 00:33 FINSOC kahmengw 21●2●7

One Answer:

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Did you mean capital allocation line? If so this might clear things up a little:

The capital allocation line is basically a graph showing the expected return and standard deviation of different combinations of risky and risk free assets.

The capital market line is a special case where the risky asset is the market portfolio (such as a market index). The basic difference is that the CAL is formed using the single asset return whilst the CML uses the market return.

answered Aug 15 '10 at 07:03

roger
111●6

That's a very good answer i reckon.

Nonetheless, would we end up with the CML if we aggregate all investors in the market. Meaning the individual risky portfolios for a given CAL when aggregated across investors will yield the market value-weighted portfolio and hence the CML?

(Aug 15 '10 at 10:31) FINSOC Kahmeng

I think that makes sense as when you aggregate the results of all investors in the market you will basically get the market return.

(Aug 16 '10 at 04:34) roger

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