Title: The Two-Block Covariance Matrix and the CAPM
Abstract: The classical assumptions of the Capital Asset Pricing Model do not ensure obtaining a tangency (market) portfolio in which all the risky assets appear with positive proportions. This paper gives an additional set of assumptions that ensure obtaining such a portfolio. Our new set of assumptions mainly deals with the structure of the covariance matrix of the risky assets returns. The structure we suggest for the covariance matrix is of a two-block type. We derive analytically sufficient conditions for a matrix of this type to produce a long-onlytangency portfolio (as well as a long-only global minimum variance portfolio).
Publication Year: 2012
Publication Date: 2012-01-01
Language: en
Type: article
Indexed In: ['crossref']
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Cited By Count: 1
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