The Constrained Asset Share Estimation (Case) Method: Testing Mean-Variance Efficiency of the U.S. Stock Market

31 Pages Posted: 6 Jul 2004 Last revised: 30 Sep 2010

See all articles by Charles M. Engel

Charles M. Engel

University of Wisconsin - Madison - Department of Economics; National Bureau of Economic Research (NBER); University of Washington - Department of Economics

Jeffrey A. Frankel

Harvard University - Harvard Kennedy School (HKS); National Bureau of Economic Research (NBER)

Kenneth Froot

National Bureau of Economic Research (NBER); Harvard University - Business School (HBS)

Anthony P. Rodrigues

Federal Reserve Bank of New York

Date Written: March 1993

Abstract

We apply the method of constrained asset share estimation (CASE) to test the mean-variance efficiency (MVE) of the stock market. This method allows conditional expected returns to vary in relatively unrestricted ways. The data estimate reasonably the price of risk, and, in some cases, the MVE model is valuable in explaining expected equity returns. Unlike with most tests of MVE. we can put an explicit interpretation on the alternative hypothesis -- a general linear Tobin portfolio choice model. We reject the restrictions implied by MVE.

Suggested Citation

Engel, Charles M. and Frankel, Jeffrey A. and Froot, Kenneth and Rodrigues, Anthony P., The Constrained Asset Share Estimation (Case) Method: Testing Mean-Variance Efficiency of the U.S. Stock Market (March 1993). NBER Working Paper No. w4294. Available at SSRN: https://ssrn.com/abstract=227064

Charles M. Engel (Contact Author)

University of Wisconsin - Madison - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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University of Washington - Department of Economics ( email )

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Jeffrey A. Frankel

Harvard University - Harvard Kennedy School (HKS) ( email )

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HOME PAGE: http://www.ksg.harvard.edu/fs/jfrankel

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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Kenneth Froot

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
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United States

Harvard University - Business School (HBS) ( email )

Soldiers Field Road
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Boston, MA 02163
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Anthony P. Rodrigues

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

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