IDEAS home Printed from
MyIDEAS: Login to save this article or follow this journal

An Analytic Derivation of the Efficient Market Portfolio

  • Zion Guo


    (Department of Business Education, College of Technology, National Changhua University of Education, 500, Changhua, Taiwan, R.O.C.)

  • Hsin-Yi Huang

    (C., Tel.: 886-4-7232105 ext.7344; Fax: 886-4-7211290, E-mail:

Registered author(s):

    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.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL:
    Download Restriction: no

    Article provided by Institute for Economic Forecasting in its journal Romanian Journal for Economic Forecasting.

    Volume (Year): (2012)
    Issue (Month): 4 (December)
    Pages: 104-116

    in new window

    Handle: RePEc:rjr:romjef:v::y:2012:i:4:p:104-116
    Contact details of provider: Postal: Casa Academiei, Calea 13, Septembrie nr.13, sector 5, Bucure┼čti 761172
    Phone: 004 021 3188148
    Fax: 004 021 3188148
    Web page:

    More information through EDIRC

    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.:

    as in new window
    1. Breeden, Douglas T., 1979. "An intertemporal asset pricing model with stochastic consumption and investment opportunities," Journal of Financial Economics, Elsevier, vol. 7(3), pages 265-296, September.
    2. Kandel, Shmuel & Stambaugh, Robert F., 1987. "On correlations and inferences about mean-variance efficiency," Journal of Financial Economics, Elsevier, vol. 18(1), pages 61-90, March.
    3. MacKinlay, A Craig & Richardson, Matthew P, 1991. " Using Generalized Method of Moments to Test Mean-Variance Efficiency," Journal of Finance, American Finance Association, vol. 46(2), pages 511-27, June.
    4. Levy, Haim, 1983. "The Capital Asset Pricing Model: Theory and Empiricism," Economic Journal, Royal Economic Society, vol. 93(369), pages 145-65, March.
    5. Ravi Jagannathan & Tongshu Ma, 2002. "Risk Reduction in Large Portfolios: Why Imposing the Wrong Constraints Helps," NBER Working Papers 8922, National Bureau of Economic Research, Inc.
    6. Green, R.C. & Hollifield, B., 1990. "When Will Mean-Variance Efficient Portfolios Be Well Diversified?," GSIA Working Papers 1990-12, Carnegie Mellon University, Tepper School of Business.
    7. Gibbons, Michael R & Ross, Stephen A & Shanken, Jay, 1989. "A Test of the Efficiency of a Given Portfolio," Econometrica, Econometric Society, vol. 57(5), pages 1121-52, September.
    8. Green, Richard C, 1986. " Benchmark Portfolio Inefficiency and Deviations from the Security Market Line," Journal of Finance, American Finance Association, vol. 41(2), pages 295-312, June.
    9. Roll, Richard, 1978. "Ambiguity when Performance is Measured by the Securities Market Line," Journal of Finance, American Finance Association, vol. 33(4), pages 1051-69, September.
    10. Soosung Hwang & Stephen Satchell, 2002. "Calculating the misspecification in beta from using a proxy for the market portfolio," Applied Financial Economics, Taylor & Francis Journals, vol. 12(11), pages 771-781.
    11. Merton, Robert C, 1969. "Lifetime Portfolio Selection under Uncertainty: The Continuous-Time Case," The Review of Economics and Statistics, MIT Press, vol. 51(3), pages 247-57, August.
    12. Merton, Robert C., 1971. "Optimum consumption and portfolio rules in a continuous-time model," Journal of Economic Theory, Elsevier, vol. 3(4), pages 373-413, December.
    13. Dybvig, Philip H & Ross, Stephen A, 1985. " The Analytics of Performance Measurement Using a Security Market Line," Journal of Finance, American Finance Association, vol. 40(2), pages 401-16, June.
    14. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-45, November.
    15. Jobson, J. D. & Korkie, Bob, 1982. "Potential performance and tests of portfolio efficiency," Journal of Financial Economics, Elsevier, vol. 10(4), pages 433-466, December.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:rjr:romjef:v::y:2012:i:4:p:104-116. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Corina Saman)

    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 references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.