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Imputing Expected Security Returns from Portfolio Composition

Published online by Cambridge University Press:  19 October 2009

Extract

The normative procedures of Markowitz [4], Sharpe [6], and others can be utilized to determine an optimal portfolio (set of security holdings) given estimates of risk, relevant constraints, and expected returns on securities. Building on these foundations, the positive models of Sharpe [7], Lintner [3], Mossin [5], and others assume that investors form portfolios as if they were following such procedures. We observe considerable differences in portfolio composition, some of which undoubtedly stem from differences in expectations. Yet the predictions of most investors are either made implicitly or, if made explicitly, are jealously guarded and hence cannot be observed by outsiders.

Type
Research Article
Copyright
Copyright © School of Business Administration, University of Washington 1974

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References

REFERENCES

[1]Beja, Avraham. “On Systematic and Unsystematic Components of Risk.” Journal of finance, March 1972.CrossRefGoogle Scholar
[2]Fama, Eugene F.Risk, Return and Equilibrium, Some Clarifying Comments.” Journal of finance, March 1968.CrossRefGoogle Scholar
[3]Lintner, John.The Valuation of Risk Assets and the Selection of Risky Investments in Stock Portfolios and Capital Budgets.” Review of Economics and Statistics, February 1965.CrossRefGoogle Scholar
[4]Markowitz, Harry. Portfolio Selection: Efficient Diversification of Investments. New York: John Wiley and Sons, Inc., 1959.Google Scholar
[5]Mossin, Jan. “Equilibrium in a Capital Asset Market.” Econometrica, October 1966.CrossRefGoogle Scholar
[6]Sharpe, William F.A Simplified Model for Portfolio Analysis.” Management Science, January 1963.CrossRefGoogle Scholar
[7]Sharpe, William F.Capital Asset Prices: A Theory of Market Equilibrium under Conditions of Risk.” Journal of Finance, September 1964.Google Scholar
[8]Treynor, Jack L., and Black, Fischer. “How to Use Security Analysis to Improve Portfolio Selection.” Journal of Business, January 1973.CrossRefGoogle Scholar
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