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Asymptotic and Bayesian Confidence Intervals for Sharpe-Style Weights

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  • Tae-Hwan Kim

Abstract

Sharpe-style regression has become a widely used analytic tool in the financial community. The style regression allows one to investigate such interesting issues as style composition, style sensitivity, and style change over time. All previous methods to obtain the distribution and confidence intervals of the style coefficients are statistically valid only in the special case in which none of the true style weights are zero or one. In practice, it is quite plausible to have zero or one for the values of some style weights. In this article we apply new results and develop a comparable Bayesian method to obtain statistically valid distributions and confidence intervals regardless of the true values of style weights. Copyright 2005, Oxford University Press.

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Bibliographic Info

Article provided by Society for Financial Econometrics in its journal Journal of Financial Econometrics.

Volume (Year): 3 (2005)
Issue (Month): 3 ()
Pages: 315-343

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Handle: RePEc:oup:jfinec:v:3:y:2005:i:3:p:315-343

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  1. Donald W. K. Andrews, 1999. "Estimation When a Parameter Is on a Boundary," Econometrica, Econometric Society, vol. 67(6), pages 1341-1384, November.
  2. William N. Goetzmann & Stephen J. Brown, 1998. "Mutual Fund Styles," Yale School of Management Working Papers ysm40, Yale School of Management.
  3. Donald W.K. Andrews, 1997. "Estimation When a Parameter Is on a Boundary: Theory and Applications," Cowles Foundation Discussion Papers 1153, Cowles Foundation for Research in Economics, Yale University.
  4. Geweke, John, 1986. "Exact Inference in the Inequality Constrained Normal Linear Regression Model," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 1(2), pages 127-41, April.
  5. Fung, William & Hsieh, David A, 1997. "Empirical Characteristics of Dynamic Trading Strategies: The Case of Hedge Funds," Review of Financial Studies, Society for Financial Studies, vol. 10(2), pages 275-302.
  6. Donald W. K. Andrews, 2000. "Inconsistency of the Bootstrap when a Parameter Is on the Boundary of the Parameter Space," Econometrica, Econometric Society, vol. 68(2), pages 399-406, March.
  7. D. N. Graham, 1961. "Discussion," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 9(1), pages 54-55, 03.
  8. Kloek, Tuen & van Dijk, Herman K, 1978. "Bayesian Estimates of Equation System Parameters: An Application of Integration by Monte Carlo," Econometrica, Econometric Society, vol. 46(1), pages 1-19, January.
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Cited by:
  1. Laurens Swinkels, Pieter Jelle VanDerSluis, 2001. "Return-based Style Analysis with Time-varying Exposures," Computing in Economics and Finance 2001 125, Society for Computational Economics.
  2. emmanuel, mamatzakis & george, christodoulakis, 2010. "Return Attribution Analysis of the UK Insurance Portfolios," MPRA Paper 22516, University Library of Munich, Germany.
  3. de Roon, Frans & Nijman, Theo E & ter Horst, Jenke, 2002. "Evaluating Style Analysis," CEPR Discussion Papers 3181, C.E.P.R. Discussion Papers.
  4. Camponovo, Lorenzo & Scaillet, Olivier & Trojani, Fabio, 2012. "Robust subsampling," Journal of Econometrics, Elsevier, vol. 167(1), pages 197-210.
  5. Alessandro Bucciol & Raffaele Miniaci, 2006. "Optimal asset allocation based on utility maximization in the presence of market frictions," "Marco Fanno" Working Papers 0012, Dipartimento di Scienze Economiche "Marco Fanno".
  6. Pattarin, Francesco & Paterlini, Sandra & Minerva, Tommaso, 2004. "Clustering financial time series: an application to mutual funds style analysis," Computational Statistics & Data Analysis, Elsevier, vol. 47(2), pages 353-372, September.

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