Is the Market Portfolio Efficient When Investors Are Not Utility Maximisers? Véronique Le Sourd. The theoretical efficiency of the market portfolio is widely evoked by index providers to justify the setting of cap-weighting indices, as cap-weighting is, according to financial theory, bound to be the optimal investment choice. Indeed, the market portfolio, defined as the optimal risky investment by Sharpe (1964) and Lintner (1965) in the capital asset pricing model (CAPM), is set up as the cap-weighted combination of all available assets, including stocks, bonds, and not easily tradable assets such as human capital or real estate. However, the conclusion of market portfolio efficiency, and consequently of the efficiency of cap-weighted indices, appears to be questionable. The efficiency of the market portfolio, inherent to the CAPM, is obtained provided that strong assumptions hold. More...