Portfolio efficiency under heterogeneous beliefs

He, X; Shi, L

Portfolio efficiency under heterogeneous beliefs

He, X

Shi, L

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Publisher:: World Scientific
Publication Type:: Chapter
Citation:: Recent Advances in Financial Engineering, 2010, 1st, pp. 127 - 156
Issue Date:: 2010-01

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Field	Value	Language
dc.contributor.author	He, X https://orcid.org/0000-0003-1446-9996	en_US
dc.contributor.author	Shi, L https://orcid.org/0000-0002-6226-1762	en_US
dc.contributor.editor	Kijima, M	en_US
dc.contributor.editor	Hara, C	en_US
dc.contributor.editor	Tanaka, K	en_US
dc.contributor.editor	Muromachi, Y	en_US
dc.date.issued	2010-01	en_US
dc.identifier.citation	Recent Advances in Financial Engineering, 2010, 1st, pp. 127 - 156	en_US
dc.identifier.isbn	978-981-4299-89-3	en_US
dc.identifier.uri	http://hdl.handle.net/10453/14352
dc.description.abstract	In the standard mean variance (MV) capital asset pricing model (CAPM) with homogeneous beliefs, the optimal portfolios of investors are MV efficient. It is expected that this is no longer true in general when investors have heterogeneous beliefs in the means. and variances/covariances of asset returns. This paper extends the s.tandard Black's zero-beta CAPM to incorporate heterogeneous beliefs and verifies that lhe subjectively optima) portfolios of heterogeneous investors are MV inefficient in generaL The paper then demonstrates that the traditional geometric relation of the mean variance frontiers with and Without the riskless asset under homogeneous beliefs does not hold in general under heterogelleous beliefs. The paper further examines the impact of biased beliefs among investors on the MY efficiency of their optimal portfolios. The results provide some explanalions on the risk premium puzzle, Miller's hypothesis, and underperfonnance of managed funds.	en_US
dc.publisher	World Scientific	en_US
dc.relation.ispartof	Recent Advances in Financial Engineering	en_US
dc.title	Portfolio efficiency under heterogeneous beliefs	en_US
dc.type	Chapter
utslib.location	Singapore	en_US
utslib.for	1502 Banking, Finance and Investment	en_US
utslib.citation.edition	1st	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Faculty of Business/Finance Discipline
pubs.organisational-group	/University of Technology Sydney/Strength - QFRC - Quantitative Finance Research Centre
utslib.copyright.status	closed_access
pubs.consider-herdc	true	en_US
pubs.edition	1st	en_US
pubs.place-of-publication	Singapore	en_US

Abstract:

In the standard mean variance (MV) capital asset pricing model (CAPM) with homogeneous beliefs, the optimal portfolios of investors are MV efficient. It is expected that this is no longer true in general when investors have heterogeneous beliefs in the means. and variances/covariances of asset returns. This paper extends the s.tandard Black's zero-beta CAPM to incorporate heterogeneous beliefs and verifies that lhe subjectively optima) portfolios of heterogeneous investors are MV inefficient in generaL The paper then demonstrates that the traditional geometric relation of the mean variance frontiers with and Without the riskless asset under homogeneous beliefs does not hold in general under heterogelleous beliefs. The paper further examines the impact of biased beliefs among investors on the MY efficiency of their optimal portfolios. The results provide some explanalions on the risk premium puzzle, Miller's hypothesis, and underperfonnance of managed funds.

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http://hdl.handle.net/10453/14352