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Market portfolio efficiency and value stocks

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  • Thierry Post

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  • Pim Vliet

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Abstract

In this journal, Best, Best, and Yoder (2000) recently demonstrated that portfolios of U.S. value stocks dominate portfolios of U.S. growth stocks in terms of second-order stochastic dominance (SSD). We cannot conclude from this finding that the market is SSD inefficient, however, because market portfolio efficiency generally does not require growth portfolios to be efficient. Furthermore, stochastic dominance results are very sensitive to sampling error. In fact, the value-weighted market portfolio is not significantly inefficient, and no significant value effects exist in the sample of Best, Best, and Yoder. Copyright Academy of Economics and Finance 2004

Suggested Citation

  • Thierry Post & Pim Vliet, 2004. "Market portfolio efficiency and value stocks," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 28(3), pages 300-306, September.
  • Handle: RePEc:spr:jecfin:v:28:y:2004:i:3:p:300-306
    DOI: 10.1007/BF02751734
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    File URL: http://hdl.handle.net/10.1007/BF02751734
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    References listed on IDEAS

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    1. Thierry Post, 2003. "Empirical Tests for Stochastic Dominance Efficiency," Journal of Finance, American Finance Association, vol. 58(5), pages 1905-1932, October.
    2. Post, Thierry & van Vliet, Pim, 2006. "Downside risk and asset pricing," Journal of Banking & Finance, Elsevier, vol. 30(3), pages 823-849, March.
    3. Haim Levy, 1992. "Stochastic Dominance and Expected Utility: Survey and Analysis," Management Science, INFORMS, vol. 38(4), pages 555-593, April.
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    Cited by:

    1. Rudolf F. Klein & K. Victor Chow, 2010. "Sentiment Effect and Market Portfolio Inefficiency," Working Papers 10-08, Department of Economics, West Virginia University.

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