Arbeitspapier

The Cross-Section of Positively Weighted Portfolios

This paper examines properties of mean-variance inefficient proxies with respect to producing a linear relation between expected returns and betas. The numerical results of a Monte Carlo simulation show that in the CAPM slightly inefficient, positively weighted proxies cause an almost perfect linear expected return - beta relation. Moreover, we show that a strong linearity among a predefined subset of assets exists. These implications are important for the interpretation of empirical tests as well as for asset pricing and for the improvement of proxies' benchmark properties. In contrast to current literature the results suggest that the CAPM's pricing error is small when slightly inefficient, positively weighted proxies are used.

Language
Englisch

Bibliographic citation
Series: WWZ Working Paper ; No. 15/07

Classification
Wirtschaft
Subject
asset pricing
CAPM
Roll Critique
mean-variance analysis
short-sale constraint
market proxy
Kapitaleinkommen
Portfolio-Management
Varianzanalyse
CAPM
Monte-Carlo-Simulation
USA

Event
Geistige Schöpfung
(who)
Niedermayer, Daniel
Zimmermann, Heinz
Event
Veröffentlichung
(who)
University of Basel, Center of Business and Economics (WWZ)
(where)
Basel
(when)
2007

DOI
doi:10.5451/unibas-ep61237
Handle
Last update
10.03.2025, 11:42 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Niedermayer, Daniel
  • Zimmermann, Heinz
  • University of Basel, Center of Business and Economics (WWZ)

Time of origin

  • 2007

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