Moshe Levy and Richard Roll were named winners of the $10,000 Harry M. Markowitz Award prize, according to a joint statement by New Frontier Advisors LLC and the Journal of Investment Management.
The two will split the prize money for their paper, “A New Perspective on the Validity of CAPM: Still Alive and Well.”
Mr. Levy is professor of finance at Jerusalem School of Business Administration of Hebrew University and Mr. Roll is Distinguished Professor, Joel Fried Chair in Applied Finance at Anderson School of Management, University of California, Los Angeles.
The winning paper analyzes the validity of the capital asset pricing model.
“Most academic studies empirically reject the CAPM, leaving the lack of a better alternative as the only uneasy justification for using the model,” according to the authors' abstract. “Here we … show that with slight variations in the empirically estimated parameters … the CAPM perfectly holds. Thus, in contrast to the widely held belief, the CAPM cannot be empirically rejected. “
CAPM “has far-reaching practical implications for both investors and corporate managers,” according to their abstract. The model implicitly “advocates passive investment,” the abstract says. “It also provides the most widely used measure of risk, beta, which is used to calculate the cost of capital and excess return” or alpha.
Mr. Levy, in an e-mail said, “Our paper does not prove that the CAPM holds, but it shows that the model cannot be empirically rejected.
“I don't know yet how these results will effect institutional investors, but they (the results) suggest that passive indexing is a good strategy.”
The winners of the awards, sponsored by Boston-based New Frontier and the Lafayette, Calif.-based JOIM and announced Jan. 31, were selected by a panel of Nobel laureates in economics, consisting of Mr. Markowitz, Robert C. Merton, Myron S. Scholes and William F. Sharpe.
The panel also selected two papers as runners-up, recognizing them with special distinction awards.
Jeffrey Graham, economist with OnPoint Analytics Inc., Emeryville, Calif., won a $5,000 prize for his paper, “Comment on the Theoretical and Empirical Evidence of Fundamental Indexing.”
Mr. Graham's paper challenges the reputed superiority of fundamental indexing to market capitalization-weighted indexing. His firm OnPoint focuses on providing expert testimony and analysis on economic and financial issues.
Three other authors will split a $5,000 prize, recognizing their paper, “Lifecycle Consumption Investment Policies and Pension Plans: A Dynamic Analysis.”
The authors, all of Boston University, are Zvi Bodie, the Norman and Adele Barron Professor of Management; Jerome B. Detemple, professor of finance; and Marcel Rindisbacher, associate professor of finance.
The winning papers, selected from papers published in the JOIM in 2012, are available at the JOIM website with a subscription or a downloading fee per paper, Mike MacMillan, spokesman for the sponsors, said in an e-mail.