A simplified approach to benchmark, relative return, and asset pricing

This analysis provides a much simpler and more intuitive derivation of Bergeron's (2021) benchmark model. Bergeron states that there are no assumptions regarding arbitrage and equilibrium, but this analysis shows that the same result obtained under no-arbitrage equilibrium conditions. Missing from Bergeron's analysis is an extension to Black's (1972) zero-beta CAPM so that result is presented here. The analysis concludes with a simple empirical example highlighting the importance of choosing a benchmark that is mean-variance efficient.