TY  - JOUR
AU  - Engel,Charles
AU  - Frankel,Jeffrey A.
AU  - Froot,Kenneth A.
AU  - Rodrigues,Anthony P.
TI  - Conditional Mean-Variance Efficiency of the U.S. Stock Market
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 2890
PY  - 1989
Y2  - March 1989
UR  - http://www.nber.org/papers/w2890
L1  - http://www.nber.org/papers/w2890.pdf
N1  - Author contact info:
Charles Engel
Department of Economics
University of Wisconsin
1180 Observatory Drive
Madison, WI  53706-1393
Tel: 608/262-3697
Fax: 608/262-2033
E-Mail: cengel@ssc.wisc.edu

Jeffrey A. Frankel
Kennedy School of Government
Harvard University
79 JFK Street
Cambridge, MA 02138
Tel: 617/496-3834
Fax: 617/496-5747
E-Mail: jeffrey_frankel@harvard.edu

Kenneth A. Froot
Graduate School of Business
Harvard University
Soldiers Field
Boston, MA 02163
Tel: 617/495-6677
Fax: 617/496-7357
E-Mail: kfroot@hbs.edu
AB  - We apply the method of constrained asset share estimation (CASE) to test the mean-variance efficiency (MVE) of the stock market. This method allows conditional expected returns to vary in unrestricted ways, given investor preferences. We also allow conditional variances to follow an ARCH process. The data estimate reasonably the coefficient of relative risk aversion, though are unable to reject investor risk neutrality. We reject the restrictions implied by MVE, although changing conditional variances improve statistically upon measured market efficiency. We find that unrestricted asset-share and ARCH models help forecast excess returns. Once MVE is imposed, however, this forecasting ability disappears.
ER  -