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Simplifying and generalizing some efficient frontier and CAPM related results

Author

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  • Ekern, Steinar

    () (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)

Abstract

This paper simplifies, generalizes, extends, surveys and unifies results related to the efficient frontier in portfolio analysis and to asset pricing formulations of the Capital Asset Pricing Model (CAPM) type. It derives the composition and properties of many central portfolios in portfolio analysis. It also discusses and provides several CAPM type formulations involving different portfolios. In particular, it states the tangency portfolio in an instructive and very simple way, focusing on similarities in going from the global minimum variance portfolio via a null index portfolio whose zero beta portfolio has a zero expected return. The Non-frontier zero beta, the Null index and the Augmented frontier CAPM versions supplement standard CAPM formulations. More importantly, the GMVP and the Benchmark versions of the CAPM do not rely on a zero beta portfolio, but require two betas.

Suggested Citation

  • Ekern, Steinar, 2007. "Simplifying and generalizing some efficient frontier and CAPM related results," Discussion Papers 2007/12, Norwegian School of Economics, Department of Business and Management Science.
  • Handle: RePEc:hhs:nhhfms:2007_012
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    File URL: http://hdl.handle.net/11250/227273
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    Keywords

    CAPM types; Roll's approach; tangency portfolio; GMVP; benchmark;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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