Market Efficiency: A Theoretical Distinction and so What?

Posted: 28 Oct 2005

See all articles by Harry Markowitz

Harry Markowitz

University of California at San Diego

Abstract

With the aid of some simplifying assumptions, the capital asset pricing model comes to dramatic conclusions about practical matters, such as how to choose an investment portfolio and how to value financial assets. As illustrated in this article, when one particular, clearly unrealistic CAPM assumption is replaced by a more real-world version, some of the dramatic, practical conclusions of CAPM no longer follow. This result has implications for financial practice, research, and pedagogy.

Keywords: Investment Theory, CAPM, APT, Other Pricing Theories, Efficient Market Theory

Suggested Citation

Markowitz, Harry, Market Efficiency: A Theoretical Distinction and so What?. Financial Analysts Journal, Vol. 61, No. 5, pp. 17-30, September/October 2005. Available at SSRN: https://ssrn.com/abstract=827388

Harry Markowitz (Contact Author)

University of California at San Diego ( email )

9500 Gilman Drive
La Jolla, CA 92093-0508
United States
(858) 534-3383 (Phone)

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