Testing the efficiency of FTSE 100 in the mean-standard deviation space: a new approach
KeywordsΥπόδειγμα αποτίμησης κεφαλαιακών στοιχείων ; Χώρος αναμενόμενης απόδοσης τυπικής απόκλισης ; Αποδοτικό σύνορο ; 3d μοντέλο ; Efficient frontier ; Inefficiency ; FTSE 100 ; 3d model ; Capital Asset Pricing Model ; Asset pricing ; Roll ; Mean-standard deviation space ; Fama - Macbeth
The purpose of this thesis is to prove the inefficiency of the FTSE 100 Index, so that the 3d model of Dr. George Diacogiannis and Dr. David Feldman holds. If there is a chance that the market index is inefficient then the appropriate model for asset pricing should be one model that confronts the index as inefficient. Reviewing the bibliography there is not any model apart from the 3d model we mentioned. The daily data concerning FTSE 100 Index prices and stock prices listed on FTSE 100 from June 2006 to June 2016 were received from Bloomberg terminal database. Splitting data to periods and sub periods with daily, weekly and monthly prices and returns, we followed Roll’s methodology (1977) in order to create the efficient frontier portfolios. Moreover, for daily, weekly and monthly data of one period consisting of 10 years we will perform Fama and MacBeth (1973) linear regression to prove that CAPM does not hold. The final part was to find if the index return and standard deviation was in the efficient frontier by the following three ways: schematically, by calculating weights and statistically.