Mean-variance analysis and the Modified Market Portfolio

Jan Wenzelburger ()

Journal of Economic Dynamics and Control, 2020, vol. 111, issue C

Abstract: This article considers a financial market in which asset returns are stipulated by an exogenous stochastic process. It argues that the market portfolio should be replaced by a modified market portfolio which by construction is mean-variance efficient. All classical tenets of the CAPM are established without using any of its restrictive assumptions. A valuation formula and beta coefficients that capture the full cross sectional variability of the returns process are introduced, allowing for a distinction between systematic and non-systematic risk. It is shown that the modified market portfolio does, in general, not coincide with the traditional market portfolio.

Keywords: Market portfolio; Mean-variance analysis; Agent-based models; Heterogeneous beliefs; CAPM (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0165188919302167
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:111:y:2020:i:c:s0165188919302167

DOI: 10.1016/j.jedc.2019.103821

Access Statistics for this article

Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok

More articles in Journal of Economic Dynamics and Control from Elsevier
Bibliographic data for series maintained by Catherine Liu ().