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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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  • Charles Engel, Jeffrey A. Frankel, Kenneth A. Froot, and Anthony Rodrigues.

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.
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Charles Engel, Jeffrey A. Frankel, Kenneth A. Froot, and Anthony Rodrigues., 1990. "The Constrained Asset Share Estimation (CASE) Method: Testing Mean-Variance Efficiency of the U.S. Stock Market," Economics Working Papers 90-134, University of California at Berkeley.
    • Handle: RePEc:ucb:calbwp:90-134
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    Cited by:

    1. Glassman, Debra A. & Riddick, Leigh A., 2001. "What causes home asset bias and how should it be measured?," Journal of Empirical Finance, Elsevier, vol. 8(1), pages 35-54, March.
    2. Jeffrey A. Frankel, 1994. "The Internationalization of Equity Markets," NBER Books, National Bureau of Economic Research, Inc, number fran94-1, January-J.
    3. D'Ecclesia, Rita L. & Zenios, Stavros A., 2005. "Estimation of asset demands by heterogeneous agents," European Journal of Operational Research, Elsevier, vol. 161(2), pages 386-398, March.
    4. Glassman, Debra A. & Riddick, Leigh A., 1996. "Why empirical international portfolio models fail: evidence that model misspecification creates home asset bias," Journal of International Money and Finance, Elsevier, vol. 15(2), pages 275-312, April.
    5. Bernard Dumas, 1993. "Partial- vs general-equilibrium models of the international capital market," Working Papers hal-00610766, HAL.
    6. Frankel, Jeffrey A., 1994. "The Internalization of Equity Markets: Introduction," Center for International and Development Economics Research (CIDER) Working Papers 233216, University of California-Berkeley, Department of Economics.
    7. Andrew Clare & Raymond O'Brien & Peter Smith & Stephen Thomas, 1996. "Global macroeconomic shocks, time-varying covariances and tests of the international CAPM," Applied Economics Letters, Taylor & Francis Journals, vol. 3(2), pages 109-113.

    More about this item

    JEL classification:

    • 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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