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Further Ambiguity When Performance Is Measured by the Security Market Line

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  • Grauer, Robert R

Abstract

This paper employs the optimality conditions for expected utility and mean-variance portfolio problems to examine the ambiguities associated with the security market line criterion both at a point in time and through time. At a point in time, the author shows that the security market line criterion can be irrelevant, even in mean-variance economies. In a multiperiod setting, he shows that the analysis of performance based on portfolio choice is inconsistent with the analysis based on return generating models. Empirical work suggests that the inconsistency can lead to dramatically different estimates of a security's required return. Copyright 1991 by MIT Press.

Suggested Citation

  • Grauer, Robert R, 1991. "Further Ambiguity When Performance Is Measured by the Security Market Line," The Financial Review, Eastern Finance Association, vol. 26(4), pages 569-585, November.
    • Handle: RePEc:bla:finrev:v:26:y:1991:i:4:p:569-85
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    Cited by:

    1. Grauer, Robert R. & Shen, Frederick C., 2000. "Do constraints improve portfolio performance?," Journal of Banking & Finance, Elsevier, vol. 24(8), pages 1253-1274, August.

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