The two-block covariance matrix and the CAPM

David Disatnik, Simon Benninga

Research output: Contribution to journalArticlepeer-review


The classical assumptions of the capital asset pricing model do not ensure obtaining a tangency (market) portfolio in which all the risky assets appear with positive proportions. This paper gives an additional set of assumptions that ensure obtaining such a portfolio. Our new set of assumptions mainly deals with the structure of the covariance matrix of the risky assets returns. The structure we suggest for the covariance matrix is of a two-block type. We derive analytically sufficient conditions for a matrix of this type to produce a long-only tangency portfolio (as well as a long-only global minimum variance portfolio).
Original languageEnglish
Pages (from-to)32-42
Number of pages11
JournalInternational Journal of Portfolio Analysis and Management
Issue number1
StatePublished - 2012


  • Portfolio
  • Optimisation
  • block covariance matrix
  • tangency portfolio
  • market portfolio
  • capital asset pricing model
  • CAPM


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