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On the Insignificant Cross-Sectional Risk-Return Relationship
Nanyang Business School, Nanyang Technological University, Singapore City, Singapore
Nanyang Business School, Nanyang Technological University, Singapore City, Singapore
Nanyang Business School, Nanyang Technological University, Singapore City, Singapore
- 1 Nanyang Business School, Nanyang Technological University, Singapore City, Singapore
- 2 Nanyang Business School, Nanyang Technological University, Singapore City, Singapore
- 3 Nanyang Business School, Nanyang Technological University, Singapore City, Singapore
Journal of Mathematical Finance·Volume 02 (2012)·Pages 38–40·Published 28 February 2012·DOI10.4236/jmf.2012.21004
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Abstract
In their paper, “On the Cross-sectional Relation between Expected Returns and Betas”, Roll and Ross (1994) demonstrated that the expected returns and betas can have zero relationship even when the underlying market portfolio proxies are nearby the efficient frontier. In this note, we provide the mathematical details that lead to their conclusion and further show that their claim needs not hold for the entire set of MV portfolios.
KeywordsCAPMPortfolio TheoryMathematical FinanceMarket Risk and Expected ReturnCross-Sectional RelationshipTheory and EvidenceMathematical Derivation
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- R. Roll and S. A. Ross, “On the Cross-Sectional Relation between Expected Returns and Betas,” Journal of Finance, Vol. 49, No. 1, 1994, pp. 101-121. doi:10.2307/2329137