Welcome to the new version of CaltechAUTHORS. Login is currently restricted to library staff. If you notice any issues, please email coda@library.caltech.edu
Published March 1994 | metadata_only
Journal Article

On the Cross-sectional Relation between Expected Returns and Betas


There is an exact linear relation between expected returns and true "betas" when the market portfolio is on the ex ante mean‐variance efficient frontier, but empirical research has found little relation between sample mean returns and estimated betas. A possible explanation is that market portfolio proxies are mean‐variance inefficient. We categorize proxies that produce particular relations between expected returns and true betas. For the special case of a zero relation, a market portfolio proxy must lie inside the efficient frontier, but it may be close to the frontier.

Additional Information

© 1994 the American Finance Association. We are grateful for comments from T. Daniel Coggin, Mark Grinblatt, John E. Hunter, Chi-Cheng Hsia, Andrew Lo, Simon Wheatley, three referees, the coeditor of the Journal, David Mayers, and the editor, René Stulz.

Additional details

August 20, 2023
August 20, 2023