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Is the Market Portfolio Efficient? A New Test of Mean-Variance Efficiency when all Assets are Risky
Levy and Roll (Review of Financial Studies, 2010) recently revived the debate related to the market portfolio's efficiency, suggesting that it may be mean-variance efficient after all. This paper develops an alternative test of portfolio mean-variance efficiency based on the realistic assumption that all assets are risky. The test is based on the vertical distance of a portfolio from the efficient frontier. Monte Carlo simulations show that our test outperforms the previous mean-variancedoi:10.3917/fina.341.0007 fatcat:4my5kqdsnfgsvaak7eciee7zzi