Final answer:
True, under Sharpe's model, all investors theoretically hold the market portfolio, which includes every available asset weighted by market value, as it maximizes expected return for a given level of risk.
Step-by-step explanation:
Under Sharpe's Capital Asset Pricing Model (CAPM), it is theoretically true that all investors hold the market portfolio, which is fully diversified and includes every available asset in the market weighted by market value. The assumption is that investors will choose a portfolio that maximizes expected return for a given level of risk, which is measured by the variance of portfolio return. The market portfolio, in this context, is considered to be the most efficient portfolio offering the highest expected return per unit of risk, and hence, it is assumed all investors will choose it.
However, it is important to note that this is a theoretical model, and in practice, many factors may lead an investor to hold a portfolio that is different from the market portfolio. Such factors could include individual risk preferences, investment goals, tax considerations, and constraints on investment, which cause deviations from the theoretical model.
Nevertheless, the CAPM is a foundational model in finance that helps to explain the relationship between expected return and risk, and why diversifying the portfolio can help to optimize this trade-off.