On the Cross-sectional Relation between Expected Returns and Betas.
There is an exact linear relation between expected returns and true 'betas' when the market portfolio is on the ex ante mean-variance efficient frontier but empirical research has found little relation between sample mean returns and estimated betas. A possible explanation is that market portfolio proxies are mean-variance inefficient. The authors categorize proxies that produce particular relations between expected returns and true betas. For the special case of a zero relation, a market portfolio proxy must lie inside the efficient frontier but it may be close to the frontier. Copyright 1994 by American Finance Association.
Year of publication: |
1994
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Authors: | Roll, Richard ; Ross, Stephen A |
Published in: |
Journal of Finance. - American Finance Association - AFA, ISSN 1540-6261. - Vol. 49.1994, 1, p. 101-21
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Publisher: |
American Finance Association - AFA |
Saved in:
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