Published June 2010
| public
Journal Article
The Market Portfolio May Be Mean/Variance Efficient After All: The Market Portfolio
- Creators
- Levy, Moshe
- Roll, Richard
Abstract
Numerous studies have examined the mean/variance efficiency of various market proxies by employing sample parameters and have concluded that these proxies are inefficient. These findings cast doubt about the capital asset pricing model (CAPM), one of the cornerstones of modern finance. This study adopts a reverse-engineering approach: given a particular market proxy, we find the minimal variations in sample parameters required to ensure that the proxy is mean/variance efficient. Surprisingly, slight variations in parameters, well within estimation error bounds, suffice to make the proxy efficient. Thus, many conventional market proxies could be perfectly consistent with the CAPM and useful for estimating expected returns.
Additional Information
© 2010 The Author. Published by Oxford University Press on behalf of The Society for Financial Studies. Published: 05 January 2010. We are grateful to Matthew Spiegel, the Editor, and an anonymous referee for their very helpful comments and suggestions. Financial support from the Zagagi Fund is gratefully acknowledged.Additional details
- Eprint ID
- 95272
- Resolver ID
- CaltechAUTHORS:20190506-161021699
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2019-05-06Created from EPrint's datestamp field
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