02249cam a22003017 4500001000600000003000500006005001700011006001900028007001500047008004100062100002300103245012400126260006600250300005700316490004100373500001800414520102100432530006001453538007201513538003601585588002501621690008501646700002501731710004201756830007601798856003701874856003601911w0996NBER20200925103433.0m o d cr cnu||||||||200925s1982 mau fo 000 0 eng d1 aChamberlain, Gary.10aArbitrage, Factor Structure, and Mean-Variance Analysis on Large Asset Markets /cGary Chamberlain, Michael Rothschild. aCambridge, Mass.bNational Bureau of Economic Researchc1982. a1 online resource:billustrations (black and white);1 aNBER working paper seriesvno. w0996 aOctober 1982.3 aWe examine the implications of arbitrage in a market with many assets. The absence of arbitrage opportunities implies that the linear functionals that give the mean and cost of a portfolio are continuous; hence there exist unique portfolios that represent these functionals. These portfolios span the mean-variance efficient set. We resolve the question of when a market with many assets permits so much diversification that risk-free investment opportunities are available. Ross 112, 141 showed that if there is a factor structure, then the mean returns are approximately linear functions of factor loadings. We define an approximate factor structure and show that this weaker restriction is sufficient for Ross' result. If the covariance matrix of the asset returns has only K unbounded eigenvalues, then there is an approximate factor structure and it is unique. The corresponding K eigenvectors converge and play the role of factor loadings. Hence only a principal component analysis is needed in empirical work. aHardcopy version available to institutional subscribers aSystem requirements: Adobe [Acrobat] Reader required for PDF files. aMode of access: World Wide Web.0 aPrint version record 7aE - Macroeconomics and Monetary Economics2Journal of Economic Literature class.1 aRothschild, Michael.2 aNational Bureau of Economic Research. 0aWorking Paper Series (National Bureau of Economic Research)vno. w0996.40uhttp://www.nber.org/papers/w099640uhttp://dx.doi.org/10.3386/w0996