Market Proxies, Correlation, and Relative Mean-Variance Efficiency: Still Living with the Roll Critique

Todd Prono ()

MPRA Paper from University Library of Munich, Germany

Abstract: A test of the CAPM is developed conditional on a prior belief about the correlation between the true market return and the proxy return used in the test. Consideration is given to the effect of the proxy's mismeasurement of the market return on the estimation of the market model. Failure to grant this consideration biases tests towards rejection by overstating the inefficiency of the proxy. An extension of the proposed test to a CAPM with conditioning information links mismeasurement of the market return to time-variation in beta.

Keywords: Asset pricing; CAPM; portfolio efficiency; multivariate testing; bootstrap hypothesis testing; triangular systems; endogeneity; identification; GMM; conditional heteroskedasticity; GARCH (search for similar items in EconPapers)
JEL-codes: C32 G12 (search for similar items in EconPapers)
Date: 2009-09
New Economics Papers: this item is included in nep-ecm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/20031/1/MPRA_paper_20031.pdf original version (application/pdf)

Related works:
Working Paper: Market proxies, correlation, and relative mean-variance efficiency: still living with the roll critique (2009)
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:pra:mprapa:20031

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().