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A comparison of mean-variance efficiency tests

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  • Amengual, Dante
  • Sentana, Enrique

Abstract

We analyse the asymptotic properties of mean-variance efficiency tests based on generalised methods of moments, and parametric and semiparametric likelihood procedures that assume elliptical innovations. We study the trade-off between efficiency and robustness, and prove that the parametric estimators provide asymptotically valid inferences when the conditional distribution of the innovations is elliptical but possibly misspecified and heteroskedastic. We compare the small sample performance of the alternative tests in a Monte Carlo study, and find some discrepancies with their asymptotic properties. Finally, we present an empirical application to US stock returns, which rejects the mean-variance efficiency of the market portfolio.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Econometrics.

Volume (Year): 154 (2010)
Issue (Month): 1 (January)
Pages: 16-34

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Handle: RePEc:eee:econom:v:154:y:2010:i:1:p:16-34

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Web page: http://www.elsevier.com/locate/jeconom

Related research

Keywords: Adaptivity Elliptical distributions Financial returns Portfolio choice Semiparametric estimators;

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References

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  15. E.K. Berndt & B.H. Hall & R.E. Hall, 1974. "Estimation and Inference in Nonlinear Structural Models," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 3, number 4, pages 103-116 National Bureau of Economic Research, Inc.
  16. Zhou, Guofu, 1991. "Small sample tests of portfolio efficiency," Journal of Financial Economics, Elsevier, vol. 30(1), pages 165-191, November.
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