The market portfolio may be mean/variance efficient after all

Moshe Levy, Richard Roll*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

55 Scopus citations


Numerous studies have examined the mean/variance efficiency of various market proxies by employing sample parameters and have concluded that these proxies are inefficient. These findings cast doubt about the capital asset pricing model (CAPM), one of the cornerstones of modern finance. This study adopts a reverse-engineering approach: given a particular market proxy, we find the minimal variations in sample parameters required to ensure that the proxy is mean/variance efficient. Surprisingly, slight variations in parameters, well within estimation error bounds, suffice to make the proxy efficient. Thus, many conventional market proxies could be perfectly consistent with the CAPM and useful for estimating expected returns.

Original languageAmerican English
Article numberhhp119
Pages (from-to)2464-2491
Number of pages28
JournalReview of Financial Studies
Issue number6
StatePublished - Jun 2010


Dive into the research topics of 'The market portfolio may be mean/variance efficient after all'. Together they form a unique fingerprint.

Cite this