Market portfolio efficiency and value stocks

Thierry Post () and Pim Vliet

Journal of Economics and Finance, 2004, vol. 28, issue 3, 300-306

Abstract: In this journal, Best, Best, and Yoder (2000) recently demonstrated that portfolios of U.S. value stocks dominate portfolios of U.S. growth stocks in terms of second-order stochastic dominance (SSD). We cannot conclude from this finding that the market is SSD inefficient, however, because market portfolio efficiency generally does not require growth portfolios to be efficient. Furthermore, stochastic dominance results are very sensitive to sampling error. In fact, the value-weighted market portfolio is not significantly inefficient, and no significant value effects exist in the sample of Best, Best, and Yoder. Copyright Academy of Economics and Finance 2004

Date: 2004
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DOI: 10.1007/BF02751734

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