An analytic derivation of the efficient market portfolio

Zion Guo, Hsin Yi Huang

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

A market portfolio plays an important role in many financial theories and models. It is at the heart of the capital asset pricing model and other multivariate models. Because of the market portfolio cannot be observed directly, proxy portfolios must be used to conduct empirical studies. Unfortunately, many studies found these proxies to be inefficient and even removed from the efficient frontier. According to two-fund separation theorem, we take two steps to discover the efficient market portfolio. Our thinking is straightforward and proves that our market portfolio is not only an efficient portfolio but also is situated on the capital market line. Many researches have shown that the market portfolio is extremely sensitive to performance measurements. Hence, our findings may significantly influence financial research.

Original languageEnglish
Pages (from-to)104-116
Number of pages13
JournalRomanian Journal of Economic Forecasting
Volume15
Issue number4
Publication statusPublished - 2012 Dec 1

All Science Journal Classification (ASJC) codes

  • Economics, Econometrics and Finance(all)

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