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The Econometrics Of Mean-Variance Efficiency Tests: A Survey

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  • Enrique Sentana

    ()
    (CEMFI, Centro de Estudios Monetarios y Financieros)

Abstract

This paper provides a comprehensive survey of the econometrics of mean-variance efficiency tests. Starting with the classic F test of Gibbons, Ross and Shanken (1989) and its generalised method of moments version, I analyse the effects of the number of assets and portfolio composition on test power. I then discuss asymptotically equivalent tests based on mean representing portfolios and Hansen-Jagannathan frontiers, and study the trade-offs between efficiency and robustness of using parametric and semiparametric likelihood procedures that assume either elliptical innovations or elliptical returns. After reviewing finite sample tests, I conclude with a discussion of mean-variance-skewness efficiency and spanning tests.

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Paper provided by CEMFI in its series Working Papers with number wp2008_0807.

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Date of creation: May 2008
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Handle: RePEc:cmf:wpaper:wp2008_0807

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Keywords: Elliptical distributions; exogeneity; financial returns; generalised method of moments; linear factor pricing; maximum likelihood; portfolio choice; stochastic discount factor.;

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  1. Serrano, Roberto & Vohra, Rajiv, 2010. "Multiplicity of mixed equilibria in mechanisms: A unified approach to exact and approximate implementation," Journal of Mathematical Economics, Elsevier, vol. 46(5), pages 775-785, September.
  2. Alexios Ghalanos & Eduardo Rossi & Giovanni Urga, 2012. "Independent Factor Autoregressive Conditional Density Model," DEM Working Papers Series 021, University of Pavia, Department of Economics and Management.
  3. Yusuke Kamishiro & Roberto Serrano, 2009. "Equilibrium Blocking in Large Quasilinear Economies," Working Papers 2009-12, Brown University, Department of Economics.
  4. Beaulieu, Marie-Claude & Dufour, Jean-Marie & Khalaf, Lynda, 2010. "Asset-pricing anomalies and spanning: Multivariate and multifactor tests with heavy-tailed distributions," Journal of Empirical Finance, Elsevier, vol. 17(4), pages 763-782, September.
  5. Natalia Bailey & M. Hashem Pesaran & L. Vanessa Smith, 2014. "A Multiple Testing Approach to the Regularisation of Large Sample Correlation Matrices," CESifo Working Paper Series 4834, CESifo Group Munich.
  6. Arellano, Manuel & Hansen, Lars Peter & Sentana, Enrique, 2012. "Underidentification?," Journal of Econometrics, Elsevier, vol. 170(2), pages 256-280.
  7. Natalia Bailey & Vanessa Smith & Hashem Pesaran, 2014. "A multiple testing approach to the regularisation of large sample correlation matrices," Cambridge Working Papers in Economics 1413, Faculty of Economics, University of Cambridge.
  8. Roberto Serrano, 2009. "On Watson'S Non-Forcing Contracts And Renegotiation," Working Papers wp2009_0907, CEMFI.
  9. Rafael Repullo & Javier Suarez, 2008. "The Procyclical Effects Of Basel Ii," Working Papers wp2008_0809, CEMFI.
  10. Max Bruche, 2009. "Bankruptcy Codes, Liquidation Timing, And Debt Valuation," Working Papers wp2009_0902, CEMFI.

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