01922cam a22002537 4500001000600000003000500006005001700011008004100028100002000069245013100089260006600220490004100286500001600327520082800343530006101171538007201232538003601304690011201340700002501452710004201477830007601519856003701595856003601632w4702NBER20170120050845.0170120s1994 mau||||fs|||| 000 0 eng d1 aKandel, Shmuel.10aPortfolio Inefficiency and the Cross-Section of Expected Returnsh[electronic resource] /cShmuel Kandel, Robert F. Stambaugh. aCambridge, Mass.bNational Bureau of Economic Researchc1994.1 aNBER working paper seriesvno. w4702 aApril 1994.3 aA plot of expected returns versus betas obeys virtually no relation to an inefficient index portfolio's mean-variance location. If the index portfolio is inefficient, then the coefficients and R- squared from an ordinary-least-squares regression of expected returns on betas can equal essentially any desired values. The mean-variance location of the index does determine the properties of a cross- sectional mean-beta relation fitted by generalized least squares (GLS). As the index portfolio moves closer to exact efficiency, the GLS mean-beta relation moves closer to the exact linear relation corresponding to an efficient portfolio with the same variance. The goodness-of-fit for the GLS regression is the index portfolio's squared relative efficiency, which measures closeness to efficiency in mean-variance space. aHardcopy version available to institutional subscribers. aSystem requirements: Adobe [Acrobat] Reader required for PDF files. aMode of access: World Wide Web. 7aG12 - Asset Pricing • Trading Volume • Bond Interest Rates2Journal of Economic Literature class.1 aStambaugh, Robert F.2 aNational Bureau of Economic Research. 0aWorking Paper Series (National Bureau of Economic Research)vno. w4702.4 uhttp://www.nber.org/papers/w470241uhttp://dx.doi.org/10.3386/w4702