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The Constrained Asset Share Estimation (CASE) Method: Testing Mean-Variance Efficiency of the U.S. Stock Market

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Author Info
Charles Engel
Jeffrey A. Frankel
Kenneth A. Froot
Anthony P. Rodrigues

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Abstract

We apply the method of constrained asset share estimation (CASE) to test the mean-variance efficiency (MVE) of the stock market. This method allows conditional expected returns to vary in relatively unrestricted ways. The data estimate reasonably the price of risk, and, in some cases, the MVE model is valuable in explaining expected equity returns. Unlike with most tests of MVE. we can put an explicit interpretation on the alternative hypothesis -- a general linear Tobin portfolio choice model. We reject the restrictions implied by MVE.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4294.

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Date of creation: Mar 1993
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Handle: RePEc:nbr:nberwo:4294

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Find related papers by JEL classification:
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Bollerslev, Tim & Engle, Robert F & Wooldridge, Jeffrey M, 1988. "A Capital Asset Pricing Model with Time-Varying Covariances," Journal of Political Economy, University of Chicago Press, vol. 96(1), pages 116-31, February. [Downloadable!] (restricted)
  2. Hansen, Lars Peter & Richard, Scott F, 1987. "The Role of Conditioning Information in Deducing Testable," Econometrica, Econometric Society, vol. 55(3), pages 587-613, May. [Downloadable!] (restricted)
  3. Frankel, Jeffrey & Engel, Charles M., 1984. "Do asset-demand functions optimize over the mean and variance of real returns? A six-currency test," Journal of International Economics, Elsevier, vol. 17(3-4), pages 309-323, November. [Downloadable!] (restricted)
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  4. Engel, Charles & Rodrigues, Anthony P, 1989. "Tests of International CAPM with Time-Varying Covariances," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 4(2), pages 119-38, April-Jun. [Downloadable!] (restricted)
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  5. Harvey, Campbell R., 1989. "Time-varying conditional covariances in tests of asset pricing models," Journal of Financial Economics, Elsevier, vol. 24(2), pages 289-317. [Downloadable!] (restricted)
  6. Bollerslev, Tim, 1987. "A Conditionally Heteroskedastic Time Series Model for Speculative Prices and Rates of Return," The Review of Economics and Statistics, MIT Press, vol. 69(3), pages 542-47, August. [Downloadable!] (restricted)
  7. Charles M. Engel & Anthony P. Rodrigues, 1992. "Tests of mean-variance efficiency of international equity markets," Research Paper 9209, Federal Reserve Bank of New York.
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  8. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April. [Downloadable!] (restricted)
  9. Bodurtha, James N, Jr & Mark, Nelson C, 1991. " Testing the CAPM with Time-Varying Risks and Returns," Journal of Finance, American Finance Association, vol. 46(4), pages 1485-1505, September. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Jeffrey A. Frankel, 1994. "The Internationalization of Equity Markets," NBER Working Papers 4590, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Bernard Dumas, 1993. "Partial- Vs. General-Equilibrium Models of the International Capital Market," NBER Working Papers 4446, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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