Experimental Tests of the Separation Theorem and the Capital Asset Pricing Model

A computer-controlled multistage portfolio selection task was devised to test experimentally basic assumptions underlying the separation theorem and the capital asset pricing model. Although most of the subjects diversified among the three risky assets, the introduction of a riskless asset did not h...

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Bibliographic Details
Published inThe American economic review Vol. 78; no. 3; pp. 500 - 519
Main Authors Kroll, Yoram, Levy, Haim, Rapoport, Amnon
Format Journal Article
LanguageEnglish
Published Menasha, Wis The American Economic Association 01.06.1988
American Economic Association
Subjects
Asset valuation
Capital asset pricing models
Capital investments
Experimentation
Financial investments
Financial portfolios
Investment portfolios
Investment return rates
Investment risk
Price models
Standard deviation
Stock prices
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Summary:A computer-controlled multistage portfolio selection task was devised to test experimentally basic assumptions underlying the separation theorem and the capital asset pricing model. Although most of the subjects diversified among the three risky assets, the introduction of a riskless asset did not have the effect predicted by the separation theorem, nor were the subjects affected by systematic changes in the variance-covariance matrix of the risky returns. However, performance improved as the reward was increased tenfold.
Bibliography:ObjectType-Article-2
SourceType-Scholarly Journals-1
ObjectType-Feature-1
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ISSN:0002-8282
1944-7981