A Market Model Examination of the NAIC Widely-Held Stocks Portfolios: 1983-1991

The portfolio consisting of the ten stocks most widely held by NAIC members significantly outperformed the market in 1991, prompting praisefor the NAIC members and their investment strategy. However, the members have been unable to do this consistently. We find that they have accomplished this feat only four times since 1983 (the year data collection began). Furthermore, we find that the 1991 NAIC portfolio performance is not inconsistent with the Capital Asset Pricing Model (CAPM). Instead, the1991 portfolio simply had a positive abnormal return. However, if the NAIC members can consistently pick and hold portfolios that have large positive abnormal returns in the year held, this would be impressive. We examine the portfolio of the ten most widely-held stocks for each year 1983-1991 using the Market Model framework. We find that the widely-held portfolios do not consistently generate positive abnormal returns in the year held. However, we do find consistent negative abnormal returns in the 1983-87 period, and consistent positive abnormal returns in the 1988-91 period.