TY - JOUR
T1 - The Analytics of Performance Measurement Using a Security Market Line
AU - DYBVIG, PHILIP H.
AU - ROSS, STEPHEN A.
PY - 1985/6
Y1 - 1985/6
N2 - Security market line (SML) analysis, while an important tool, has never been fully justified from a theoretical standpoint. Assuming symmetric information and an inefficient index, we show that SML analysis can be grossly misleading, since, in general, efficient and inefficient portfolios can plot above and below the SML. On a more positive note, if SML analysis uses the return on a marketed riskless asset for the zero‐beta rate, efficient portfolios must plot above the SML. Nonetheless, arbitrarily inefficient portfolios also plot above the SML. 1985 The American Finance Association
AB - Security market line (SML) analysis, while an important tool, has never been fully justified from a theoretical standpoint. Assuming symmetric information and an inefficient index, we show that SML analysis can be grossly misleading, since, in general, efficient and inefficient portfolios can plot above and below the SML. On a more positive note, if SML analysis uses the return on a marketed riskless asset for the zero‐beta rate, efficient portfolios must plot above the SML. Nonetheless, arbitrarily inefficient portfolios also plot above the SML. 1985 The American Finance Association
UR - http://www.scopus.com/inward/record.url?scp=0000863848&partnerID=8YFLogxK
U2 - 10.1111/j.1540-6261.1985.tb04964.x
DO - 10.1111/j.1540-6261.1985.tb04964.x
M3 - Article
AN - SCOPUS:0000863848
SN - 0022-1082
VL - 40
SP - 401
EP - 416
JO - The Journal of Finance
JF - The Journal of Finance
IS - 2
ER -