A note on the effects of market inefficiency and portfolio constraints on the relationship between the expected return of an asset and the market

• Severini, Thomas A. ^[1]
  1. [1] Northwestern University

     Northwestern University

     Township of Evanston, Estados Unidos

     
• Localización: Economics and Business Letters, ISSN-e 2254-4380, Vol. 4, Nº. Extra 4, 2015 (Ejemplar dedicado a: Debt and Sustainability), págs. 175-182
• Idioma: inglés
• Enlaces
  • Texto completo (pdf)
• Resumen

  • A key assumption of the Capital Asset Pricing Model is that the market portfolio is efficient; when it is inefficient, , the difference between the expected excess return of the asset and the value predicted by the CAPM, is non-zero. In this paper, a simple bound on  is given that depends on the efficiency of the market portfolio. Alternatively, the impact of inefficiency may be viewed in terms of its effect on , the coefficient of the expected market return in the CAPM. A simple bound on the difference between , based on an inefficient market portfolio, and , based on an efficient portfolio, is also given. These results are used to assess the impact of portfolio constraints.