Is the Market Portfolio Efficient? A New Test of Mean-Variance Efficiency when all Assets are Risky

Marie Brière, Bastien Drut, Valérie Mignon (), Kim Oosterlinck and Ariane Szafarz
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Marie Brière: LEDa - Laboratoire d'Economie de Dauphine - IRD - Institut de Recherche pour le Développement - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique

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Abstract: The market portfolio efficiency remains controversial. This paper develops a new test of portfolio mean-variance efficiency relying on the realistic assumption that all assets are risky. The test is based on the vertical distance of a portfolio from the efficient frontier. Monte Carlo simulations show that our test outperforms the previous mean-variance efficiency tests for large samples since it produces smaller size distortions for comparable power. Our empirical application to the U.S. equity market highlights that the market portfolio is not mean-variance efficient, and so invalidates the zero-beta CAPM.

Keywords: Efficient portfolio; mean-variance efficiency; efficiency test (search for similar items in EconPapers)
Date: 2013
Note: View the original document on HAL open archive server: https://hal.science/hal-01493323v1
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Citations: View citations in EconPapers (19)

Published in Finance, 2013, 34 (1), pp.7 - 41

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Journal Article: Is the Market Portfolio Efficient? A New Test of Mean-Variance Efficiency when all Assets are Risky (2013)
Working Paper: Is the Market Portfolio Efficient? A New Test of Mean-Variance Efficiency when All Assets Are Risky (2012)
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