Book Series
Theories of the Firm
Fifth Edition
Demetri Kantarelis

Appendix VII: Pairing industries and firms for optimum portfolio performance

322-334In accordance with the capital asset pricing model (CAPM), we show how investment firms (inclusive of institutional investors, hedge funds, mutual funds, pension funds and others) in their efforts to identify low risk (well diversified) and potentially profitable risky investments may derive efficient frontiers for various paired and highly aggregated US industries and groups of firms. Additionally, with cross-section industry data, we make an attempt to re-test the validly of the CAPM subject to a modified conventional approach and to a new one based on beta as instrument estimated from a multiple regression of industry beta on its determinants. Although, as in previous studies, the CAPM is not validated, our methodology for constructing highly aggregated efficient frontiers may prove useful especially to institutional investors, because it offers guidance as to which pair of grouped firms and grouped industries are best to choose assets from for minimum risk investing.
1 Introduction
2 Classification of publicly traded firms and industries
3 Paired aggregate efficient frontiers (PAEFs)
4 Empirics regarding the CAPM
5 Summary and conclusions
PDF  View Full PDF
 only subscribers
PDF  Click here to Order On-line