Discuss whether the following statement is true or false:
If the post-tax form of the CAPM holds,then a tax-free institution should hold the market portfolio.

Question

Quizplus · Accepted Answer

If returns are determined by the equilibrium model as shown in the equation 11ea83f1_e7f0_8d15_b5a5_7dd4f519eca2_TB6527_00 ,it should be possible to derive optimal portfolios for any investor as a function of the tax rates paid on capital gains and dividends.Individuals hold widely diversified portfolios that resemble the market portfolio.However,since tax-free institutions have a competitive advantage when they hold dividend stocks,their portfolios will resemble the market portfolio but will be tilted in favor of dividends stocks.

Discuss Whether the Following Statement Is True or False