BUSI 4502 Lecture Notes - Lecture 9: New York Post, Russell 1000 Index, Capital Asset Pricing Model
30 Aug 2018
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Document Summary
According to capm, capitalization weighted equity market is mean variance optimal. Trillions of dollars are invested or benchmarked to capitalization weighted market indexes like s&p500 index and. However, previous study of capm has rejected the idea that capitalization weighted indexes are good capm proxies and the mean variance efficiency as well. They also suggest that a more mean-variance efficient index do exist, which is stock market indexes. Hence, the main aim of this study is to construct stock market indexes that are more mean variance efficient than market capitalization indexes. The sample period is from 1950s to 2004. The sample for this study is companies and weights in indexes from compustat and csp database. The equity market indexed used are book value, trailing five- year average cash flow, trailing five-year average revenues, trailing five-year average sales, trailing five- year average gross dividends, and total employment.
