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On the Exclusion of Assets from Tests of the Mean Variance Efficiency of the Market Portfolio
Author(s) -
KANDEL SHMUEL
Publication year - 1984
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1984.tb03860.x
Subject(s) - index (typography) , variance (accounting) , econometrics , portfolio , bounding overwatch , statistics , mathematics , economics , asset (computer security) , financial economics , computer science , accounting , computer security , artificial intelligence , world wide web
This paper presents an analysis of the testability of the mean variance efficiency of a market index when the returns on some components of the index itself are not perfectly observable. The results are basically not supportive of the notion that mean variance efficiency is testable on a subset of the assets. Bounding the market share of the missing asset and its expected return is not sufficient to produce a valid test. When the variance of the missing asset is bounded, and the amount of wealth that might be missing is small, it is possible, in principle, to reject correctly the mean variance efficiency of a market index.