IDEAS home Printed from https://ideas.repec.org/p/bsl/wpaper/2007-15.html
   My bibliography  Save this paper

The Cross-Section of Positively Weighted Portfolios

Author

Listed:
  • Niedermayer, Daniel

    (University of Basel)

  • Zimmermann, Heinz

    (University of Basel)

Abstract

This paper examines properties of mean-variance inefficient proxies NEWLINE with respect to producing a linear relation between expected returns NEWLINE and betas. The numerical results of a Monte Carlo simulation show NEWLINE that in the CAPM slightly inefficient, positively weighted proxies cause NEWLINE an almost perfect linear expected return - beta relation. Moreover, we NEWLINE show that a strong linearity among a predefined subset of assets exists. NEWLINE These implications are important for the interpretation of empirical NEWLINE tests as well as for asset pricing and for the improvement of proxies' NEWLINE benchmark properties. In contrast to current literature the results NEWLINE suggest that the CAPM's pricing error is small when slightly inefficient, NEWLINE positively weighted proxies are used.

Suggested Citation

  • Niedermayer, Daniel & Zimmermann, Heinz, 2007. "The Cross-Section of Positively Weighted Portfolios," Working papers 2007/15, Faculty of Business and Economics - University of Basel.
    • Handle: RePEc:bsl:wpaper:2007/15
    as

    Download full text from publisher

    File URL: https://edoc.unibas.ch/61237/1/20180305144048_5a9d48e053342.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Robert R. Grauer, 1999. "On the Cross‐Sectional Relation between Expected Returns, Betas, and Size," Journal of Finance, American Finance Association, vol. 54(2), pages 773-789, April.
    2. Andras Niedermayer & Daniel Niedermayer, 2006. "Applying Markowitz's Critical Line Algorithm," Diskussionsschriften dp0602, Universitaet Bern, Departement Volkswirtschaft.
    3. Sharpe, William F, 1991. "Capital Asset Prices with and without Negative Holdings," Journal of Finance, American Finance Association, vol. 46(2), pages 489-509, June.
    4. John H. Cochrane & Jesus Saa-Requejo, 2000. "Beyond Arbitrage: Good-Deal Asset Price Bounds in Incomplete Markets," Journal of Political Economy, University of Chicago Press, vol. 108(1), pages 79-119, February.
    5. Kandel, Shmuel & Stambaugh, Robert F, 1995. "Portfolio Inefficiency and the Cross-Section of Expected Returns," Journal of Finance, American Finance Association, vol. 50(1), pages 157-184, March.
    6. Roll, Richard & Ross, Stephen A, 1994. "On the Cross-sectional Relation between Expected Returns and Betas," Journal of Finance, American Finance Association, vol. 49(1), pages 101-121, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. De Giorgi, Enrico G. & Post, Thierry & Yalçın, Atakan, 2019. "A concave security market line," Journal of Banking & Finance, Elsevier, vol. 106(C), pages 65-81.
    2. Levy, Moshe & Ritov, Yaacov, 2001. "Portfolio Optimization with Many Assets: The Importance of Short-Selling," University of California at Los Angeles, Anderson Graduate School of Management qt41x4t67m, Anderson Graduate School of Management, UCLA.
    3. Guermat, Cherif, 2014. "Yes, the CAPM is testable," Journal of Banking & Finance, Elsevier, vol. 46(C), pages 31-42.
    4. Diacogiannis, George & Ioannidis, Christos, 2022. "Linear beta pricing with efficient/inefficient benchmarks and short-selling restrictions," International Review of Financial Analysis, Elsevier, vol. 81(C).
    5. Wang, Zhenyu, 1998. "Efficiency loss and constraints on portfolio holdings," Journal of Financial Economics, Elsevier, vol. 48(3), pages 359-375, June.
    6. Murtazashvili, Irina & Vozlyublennaia, Nadia, 2012. "The performance of cross-sectional regression tests of the CAPM with non-zero pricing errors," Journal of Banking & Finance, Elsevier, vol. 36(4), pages 1057-1066.
    7. Attiya Yasmeen Javid, 2000. "Alternative Capital Asset Pricing Models: A Review of Theory and Evidence," PIDE Research Report 2000:3, Pakistan Institute of Development Economics.
    8. de Oliveira Souza, Thiago, 2020. "Observable implications of the conditional CAPM," Discussion Papers on Economics 13/2020, University of Southern Denmark, Department of Economics.
    9. Fama, Eugene F. & French, Kenneth R., 2018. "Choosing factors," Journal of Financial Economics, Elsevier, vol. 128(2), pages 234-252.
    10. Lewellen, Jonathan & Nagel, Stefan & Shanken, Jay, 2010. "A skeptical appraisal of asset pricing tests," Journal of Financial Economics, Elsevier, vol. 96(2), pages 175-194, May.
    11. Cujean, Julien & Andrei, Daniel & Fournier, Mathieu, 2019. "The Low-Minus-High Portfolio and the Factor Zoo," CEPR Discussion Papers 14153, C.E.P.R. Discussion Papers.
    12. Raymond Kan & Cesare Robotti & Jay Shanken, 2013. "Pricing Model Performance and the Two‐Pass Cross‐Sectional Regression Methodology," Journal of Finance, American Finance Association, vol. 68(6), pages 2617-2649, December.
    13. John Y. Campbell & John H. Cochrane, 2000. "Explaining the Poor Performance of Consumption‐based Asset Pricing Models," Journal of Finance, American Finance Association, vol. 55(6), pages 2863-2878, December.
    14. Lewellen, Jonathan & Nagel, Stefan, 2006. "The conditional CAPM does not explain asset-pricing anomalies," Journal of Financial Economics, Elsevier, vol. 82(2), pages 289-314, November.
    15. Shanken, Jay & Zhou, Guofu, 2007. "Estimating and testing beta pricing models: Alternative methods and their performance in simulations," Journal of Financial Economics, Elsevier, vol. 84(1), pages 40-86, April.
    16. Balvers, Ronald J. & Huang, Dayong, 2009. "Evaluation of linear asset pricing models by implied portfolio performance," Journal of Banking & Finance, Elsevier, vol. 33(9), pages 1586-1596, September.
    17. Haim Levy, 2010. "The CAPM is Alive and Well: A Review and Synthesis," European Financial Management, European Financial Management Association, vol. 16(1), pages 43-71, January.
    18. repec:wvu:wpaper:05-06old2 is not listed on IDEAS
    19. Don U.A. Galagedera, 2004. "A survey on risk-return analysis," Finance 0406010, University Library of Munich, Germany.
    20. C. J. Adcock & E. A. Clark, 1999. "Beta lives - some statistical perspectives on the capital asset pricing model," The European Journal of Finance, Taylor & Francis Journals, vol. 5(3), pages 213-224.
    21. Levy, Moshe, 2007. "Conditions for a CAPM equilibrium with positive prices," Journal of Economic Theory, Elsevier, vol. 137(1), pages 404-415, November.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bsl:wpaper:2007/15. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: WWZ (email available below). General contact details of provider: https://edirc.repec.org/data/wwzbsch.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.