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Orthogonal Portfolios

Roll, Richard (1980) Orthogonal Portfolios. Journal of Financial and Quantitative Analysis, 15 (5). pp. 1005-1023. ISSN 0022-1090. doi:10.2307/2330169. https://resolver.caltech.edu/CaltechAUTHORS:20190507-074907427

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Abstract

There is a false, but widely-held belief about orthogonal (“zero-beta”) portfolios: for a given market index, all zero-beta portfolios have the same expected return and the minimal-variance, zero-beta portfolio is unique. This is true only when the index is mean/variance efficient. Every nonefficient index possesses zero-beta portfolios at all levels of expected return. For a given index, minimal-variance zero-beta portfolios corresponding to different expected returns lie along an “orthogonal frontier” in the mean/variance space. The frontier has some unusual properties which turn out to be relevant for empirical work on asset pricing. It is functionally related to deviations about the “securities market line.”


Item Type:Article
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https://doi.org/10.2307/2330169DOIArticle
https://www.jstor.org/stable/2330169JSTORArticle
https://www.cambridge.org/core/journals/journal-of-financial-and-quantitative-analysis/article/orthogonal-portfolios/BCDA5A2E7CB6B0FEE0C3B0AC8BD396A6PublisherArticle
Additional Information:© 1980 School of Business Administration, University of Washington. This research was supported by a grant from The Foundation for Research in Economics and Education which does not necessarily agree with the conclusions. The comments and suggestions of the referee, Gordon J. Alexander, were unusually helpful and thorough. Of course, all remaining statements must be blamed solely on the author.
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Funding AgencyGrant Number
Foundation for Research in Economics and EducationUNSPECIFIED
Issue or Number:5
DOI:10.2307/2330169
Record Number:CaltechAUTHORS:20190507-074907427
Persistent URL:https://resolver.caltech.edu/CaltechAUTHORS:20190507-074907427
Official Citation:Roll, R. (1980). Orthogonal Portfolios. Journal of Financial and Quantitative Analysis, 15(5), 1005-1023. doi:10.2307/2330169
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:95276
Collection:CaltechAUTHORS
Deposited By: Tony Diaz
Deposited On:07 May 2019 20:21
Last Modified:16 Nov 2021 17:11

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