Tobin’s Separation Theorem: Information from the Colombian Stock Market for the First Half of 2008
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Keywords
portfolio, risk, return, efficient set, riskless asset, JEL Classification, G11, C61
Abstract
This paper shows a special situation where a portfolio created based on Tobin’s separation theorem does not match the Markowitz efficient set. Next a review of Markowitz´s portfolio selection theory is offered, followed by a review of Tobin’s separation theorem. Next, these models are used as tools for the individual investor with data on the Colombian stock market of the first half of 2008. Finally, the conclusions are shown. It is important to emphasize that the objective of this paper is not to make predictions upon expected returns, variances and covariances of these returns, nor to suggest an optimal portfolio for an investor with a particular utility function, but to expose a concrete scenario in which Tobin´s theorem leads to a portfolio located outside Markowitz´s efficient set.
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References
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Gay, R. (2011). Using Black –Scholes to determine an optimal funding term. Managerial Finance, 37(11), 985-994.
Haugen, R.A. (1986). Modern Investment Theory. New Jersey: Prentice Hall.
Lintner, J. (1965). Security Prices, Risk, and Maximal Gains from Diversification. The Journal of Finance, 20(4), 587-675.
Markowitz, H. (1952). Portfolio Selection. The Journal of Finance, 7(1), 770-91.
Medina, L.Á. (2003). Aplicación de la Teoría del Portafolio en el Mercado Accionario Colombiano. Cuadernos de Economía, 22(39), 129168.
Sharpe, W.F. (1964). Capital Asset Prices: A Theory of Market Equilibrium under Conditions of Risk. The Journal of Finance, 19(3), 425-442.
Tobin, J. (Enero 01, 2012). Liquidity Preference as Behavior Towards Risk. Review of Economic Studies, XXV (2), February, 65-86. International Library of Critical Writings in Economics, 2, 268, 307-328
National Bureau of Economic Research –NBER– Business Cycle Dating Committee. (2008). Determination of the December 2007 Peak in Economic Activity. Obtenido de http://www.nber.org/cycles/dec2008.html
Donald, D. (1977). Contributions and Growth in Tobin’s Economic Essays: A Review Essay. Journal of Economic Literature, 15(2), 486-494.
Douglas D.P. (1982). James Tobin’s Contributions to Economics. The Scandinavian Journal of Economics, 84(1), 61-88.
Gay, R. (2011). Using Black –Scholes to determine an optimal funding term. Managerial Finance, 37(11), 985-994.
Haugen, R.A. (1986). Modern Investment Theory. New Jersey: Prentice Hall.
Lintner, J. (1965). Security Prices, Risk, and Maximal Gains from Diversification. The Journal of Finance, 20(4), 587-675.
Markowitz, H. (1952). Portfolio Selection. The Journal of Finance, 7(1), 770-91.
Medina, L.Á. (2003). Aplicación de la Teoría del Portafolio en el Mercado Accionario Colombiano. Cuadernos de Economía, 22(39), 129168.
Sharpe, W.F. (1964). Capital Asset Prices: A Theory of Market Equilibrium under Conditions of Risk. The Journal of Finance, 19(3), 425-442.
Tobin, J. (Enero 01, 2012). Liquidity Preference as Behavior Towards Risk. Review of Economic Studies, XXV (2), February, 65-86. International Library of Critical Writings in Economics, 2, 268, 307-328