This paper examines properties of mean-variance inefficient proxies with respect to producing a linear relation between expected returns and betas. The numerical results of a Monte Carlo simulation show that in the CAPM slightly inefficient, positively weighted proxies cause an almost perfect...

We examine asset prices in a representative-agent model of general equilibrium. Assuming only that individuals are risk averse, we determine conditions on the changes in asset risk that are both necessary and sufficient for the asset price to fall. We show that these conditions neither imply,...

This study develops and implements a theory and method for analyzing whether introducing new securities or relaxing investment constraints improves the investment opportunity set for risk averse investors. We develop a test procedure for ‘stochastic spanning’ for two nested polyhedral...