The CML would still represent effi cient investments. We can characterize the entire population by two representative investors. One is the “uninformed” investor, who does not engage in security analysis and holds the market portfolio, while the other optimizes using the Markowitz algorithm with input from security analysis. The uninformed investor does not know what input the informed investor uses to make portfolio purchases. The uninformed investor knows, however, that if the other investor is informed, the market portfolio proportions will be optimal. Therefore, to depart from these proportions would constitute an uninformed bet, which will, on average, reduce the effi ciency of diversifi cation with no compensating improvement in expected returns.

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