  We explore a decomposition in which returns on a large class of portfolios
relative to the market depend on a smooth non-negative drift and changes in the
asset price distribution. This decomposition is obtained using general
continuous semimartingale price representations, and is thus consistent with
virtually any asset pricing model. Fluctuations in portfolio relative returns
depend on stochastic time-varying dispersion in asset prices. Thus, our
framework uncovers an asset pricing factor whose existence emerges from an
accounting identity universal across different economic and financial
environments, a fact that has deep implications for market efficiency. In
particular, in a closed, dividend-free market in which asset price dispersion
is relatively constant, a large class of portfolios must necessarily outperform
the market portfolio over time. We show that price dispersion in commodity
futures markets has increased only slightly, and confirm the existence of
substantial excess returns that co-vary with changes in price dispersion as
predicted by our theory.

Portfolio Management;General Finance