Abstract
This paper discusses a modification of the market portfolio for financial markets in which asset returns are given by an exogenously given stochastic process. This modified market portfolio derives from the first two conditional moments of the stochastic process. For any two consecutive trading periods, this portfolio is meanvariance effcient with the highest possible Sharpe ratio. A time-dependent security market line is established which allows for a decomposition into systematic and non-systematic risk. It is shown that from an agent-based modelling perspective, this portfolio will, in general, neither coincide with the standard market portfolio in finance nor with a portfolio with constant proportions of assets.
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