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Market portfolio efficiency and value stocks

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  • Thierry Post
  • Pim Vliet

Abstract

In this journal, Best, Best, and Yoder (2000) recently demonstrated that portfolios of U.S. value stocks dominate portfolios of U.S. growth stocks in terms of second-order stochastic dominance (SSD). We cannot conclude from this finding that the market is SSD inefficient, however, because market portfolio efficiency generally does not require growth portfolios to be efficient. Furthermore, stochastic dominance results are very sensitive to sampling error. In fact, the value-weighted market portfolio is not significantly inefficient, and no significant value effects exist in the sample of Best, Best, and Yoder. Copyright Academy of Economics and Finance 2004

Suggested Citation

  • Thierry Post & Pim Vliet, 2004. "Market portfolio efficiency and value stocks," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 28(3), pages 300-306, September.
    • Handle: RePEc:spr:jecfin:v:28:y:2004:i:3:p:300-306
    DOI: 10.1007/BF02751734
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    1. repec:bla:jfinan:v:58:y:2003:i:5:p:1905-1932 is not listed on IDEAS
    2. Post, Thierry & van Vliet, Pim, 2006. "Downside risk and asset pricing," Journal of Banking & Finance, Elsevier, vol. 30(3), pages 823-849, March.
    3. Haim Levy, 1992. "Stochastic Dominance and Expected Utility: Survey and Analysis," Management Science, INFORMS, vol. 38(4), pages 555-593, April.
    4. Harlow, W. V. & Rao, Ramesh K. S., 1989. "Asset Pricing in a Generalized Mean-Lower Partial Moment Framework: Theory and Evidence," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 24(3), pages 285-311, September.
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