Advanced Search
MyIDEAS: Login

Spanning Tests in Return and Stochastic Discount Factor Mean Variance Frontiers: A Unifying Approach

Contents:

Author Info

  • Peñaranda, Francisco
  • Sentana, Enrique

Abstract

We propose new approaches to test for spanning in the return and stochastic discount factor mean-variance frontiers, which assess if either the centred or uncentred mean and cost representing portfolios are shared by the initial and extended sets of assets. We show that our proposed tests are asymptotically equivalent to the existing spanning tests under the null and sequences of local alternatives, and analyse their asymptotic relative efficiency. We also extend the theory of optimal GMM inference to deal with the singularities that arise in some spanning tests. Finally, we include an empirical application to money markets in Europe.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.cepr.org/pubs/dps/DP4422.asp
Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4422.

as in new window
Length:
Date of creation: Jun 2004
Date of revision:
Handle: RePEc:cpr:ceprdp:4422

Contact details of provider:
Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820

Order Information:
Email:

Related research

Keywords: asset pricing; asymptotic slopes; GMM; matrix; representing portfolios; singular covariance;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Ignacio Palacios-Huerta, 2003. "An Empirical Analysis of the Risk Properties of Human Capital Returns," American Economic Review, American Economic Association, vol. 93(3), pages 948-964, June.
  2. Donald W.K. Andrews, 1985. "Asymptotic Results for Generalized Wald Tests," Cowles Foundation Discussion Papers 761R, Cowles Foundation for Research in Economics, Yale University, revised Apr 1986.
  3. Gallant, A. Ronald & Hansen, Lars Peter & Tauchen, George, 1990. "Using conditional moments of asset payoffs to infer the volatility of intertemporal marginal rates of substitution," Journal of Econometrics, Elsevier, vol. 45(1-2), pages 141-179.
  4. Arellano, Manuel, 2002. "Sargan's Instrumental Variables Estimation and the Generalized Method of Moments," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(4), pages 450-59, October.
  5. Antoine, Bertille & Bonnal, Helene & Renault, Eric, 2007. "On the efficient use of the informational content of estimating equations: Implied probabilities and Euclidean empirical likelihood," Journal of Econometrics, Elsevier, vol. 138(2), pages 461-487, June.
  6. Amengual, Dante & Sentana, Enrique, 2010. "A comparison of mean-variance efficiency tests," Journal of Econometrics, Elsevier, vol. 154(1), pages 16-34, January.
  7. Antonio Diez de los Rios & Enrique Sentana, 2007. "Testing Uncovered Interest Parity: A Continuous-Time Approach," Working Papers 07-53, Bank of Canada.
  8. Nijman, T.E. & Roon, F.A. de & Werker, B.J.M., 1996. "Testing for Spanning with Futrures Contracts and Nontraded Assets: A General Approach," Discussion Paper 1996-83, Tilburg University, Center for Economic Research.
  9. Newey, Whitney K. & McFadden, Daniel, 1986. "Large sample estimation and hypothesis testing," Handbook of Econometrics, in: R. F. Engle & D. McFadden (ed.), Handbook of Econometrics, edition 1, volume 4, chapter 36, pages 2111-2245 Elsevier.
  10. Chamberlain, Gary & Rothschild, Michael, 1982. "Arbitrage, Factor Structure, and Mean-Variance Analysis on Large Asset Markets," Scholarly Articles 3230355, Harvard University Department of Economics.
  11. Raymond Kan & Guofu Zhou, 2001. "Tests of Mean-Variance Spanning," CEMA Working Papers 539, China Economics and Management Academy, Central University of Finance and Economics.
  12. Bekaert, Geert & Urias, Michael S, 1996. " Diversification, Integration and Emerging Market Closed-End Funds," Journal of Finance, American Finance Association, vol. 51(3), pages 835-69, July.
  13. Snow, Karl N, 1991. " Diagnosing Asset Pricing Models Using the Distribution of Asset Returns," Journal of Finance, American Finance Association, vol. 46(3), pages 955-83, July.
  14. Hansen, Lars Peter & Richard, Scott F, 1987. "The Role of Conditioning Information in Deducing Testable," Econometrica, Econometric Society, vol. 55(3), pages 587-613, May.
  15. Francisco Peñaranda & Enrique Sentana, 2008. "Spanning tests in return and stochastic discount factor mean-variance frontiers: A unifying approach," Economics Working Papers 1101, Department of Economics and Business, Universitat Pompeu Fabra, revised Sep 2010.
  16. Lars Peter Hansen & Ravi Jagannathan, 1990. "Implications of security market data for models of dynamic economies," Discussion Paper / Institute for Empirical Macroeconomics 29, Federal Reserve Bank of Minneapolis.
  17. Nijman, T.E. & Roon, F.A. de, 2001. "Testing for mean-variance spanning: A survey," Open Access publications from Tilburg University urn:nbn:nl:ui:12-87531, Tilburg University.
  18. Breusch, Trevor & Qian, Hailong & Schmidt, Peter & Wyhowski, Donald, 1999. "Redundancy of moment conditions," Journal of Econometrics, Elsevier, vol. 91(1), pages 89-111, July.
  19. Gourieroux, C. & Monfort, A., 2005. "The econometrics of efficient portfolios," Journal of Empirical Finance, Elsevier, vol. 12(1), pages 1-41, January.
  20. Huberman, Gur & Kandel, Shmuel, 1987. " Mean-Variance Spanning," Journal of Finance, American Finance Association, vol. 42(4), pages 873-88, September.
  21. Chamberlain, Gary, 1983. "A characterization of the distributions that imply mean--Variance utility functions," Journal of Economic Theory, Elsevier, vol. 29(1), pages 185-201, February.
  22. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
  23. Simon Stevenson, 2000. "International Real Estate Diversification: Empirical Tests using Hedged Indices," Journal of Real Estate Research, American Real Estate Society, vol. 19(1), pages 105-131.
  24. Hunter, Delroy M. & Simon, David P., 2005. "Are TIPS the "real" deal?: A conditional assessment of their role in a nominal portfolio," Journal of Banking & Finance, Elsevier, vol. 29(2), pages 347-368, February.
  25. Whitney K. Newey & Richard J. Smith, 2004. "Higher Order Properties of Gmm and Generalized Empirical Likelihood Estimators," Econometrica, Econometric Society, vol. 72(1), pages 219-255, 01.
  26. Ross, Stephen A., 1978. "Mutual fund separation in financial theory--The separating distributions," Journal of Economic Theory, Elsevier, vol. 17(2), pages 254-286, April.
  27. Pietro BALESTRA & Alberto HOLLY, 1990. "A General Kronecker Formula for the Moments of the Multivariate Normal Distribution," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9002, Université de Lausanne, Faculté des HEC, DEEP.
  28. Owen, Joel & Rabinovitch, Ramon, 1983. " On the Class of Elliptical Distributions and Their Applications to the Theory of Portfolio Choice," Journal of Finance, American Finance Association, vol. 38(3), pages 745-52, June.
  29. Enrique Sentana, 2005. "Least Squares Predictions and Mean-Variance Analysis," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 3(1), pages 56-78.
  30. Jobson, J. D. & Korkie, Bob, 1982. "Potential performance and tests of portfolio efficiency," Journal of Financial Economics, Elsevier, vol. 10(4), pages 433-466, December.
  31. Robert M. De Jong & James Davidson, 2000. "Consistency of Kernel Estimators of Heteroscedastic and Autocorrelated Covariance Matrices," Econometrica, Econometric Society, vol. 68(2), pages 407-424, March.
  32. Francisco Peñaranda & Enrique Sentana, 2010. "A Unifying Approach to the Empirical Evaluation of Asset Pricing Models," Working Papers 488, Barcelona Graduate School of Economics.
  33. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, 03.
  34. Ravi Jagannathan & Zhenyu Wang, 2002. "Empirical Evaluation of Asset-Pricing Models: A Comparison of the SDF and Beta Methods," Journal of Finance, American Finance Association, vol. 57(5), pages 2337-2367, October.
  35. Geweke, John, 1981. "The Approximate Slopes of Econometric Tests," Econometrica, Econometric Society, vol. 49(6), pages 1427-42, November.
  36. Ferson, Wayne E & Foerster, Stephen R & Keim, Donald B, 1993. " General Tests of Latent Variable Models and Mean-Variance Spanning," Journal of Finance, American Finance Association, vol. 48(1), pages 131-56, March.
  37. Hansen, Lars Peter & Heaton, John & Yaron, Amir, 1996. "Finite-Sample Properties of Some Alternative GMM Estimators," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(3), pages 262-80, July.
  38. Vihang Errunza & Ked Hogan & Mao-Wei Hung, 1999. "Can the Gains from International Diversification Be Achieved without Trading Abroad?," Journal of Finance, American Finance Association, vol. 54(6), pages 2075-2107, December.
  39. Keith Vorkink, 2003. "Return Distributions and Improved Tests of Asset Pricing Models," Review of Financial Studies, Society for Financial Studies, vol. 16(3), pages 845-874, July.
  40. Gourieroux Christian & Monfort Alain & Renault E, 1991. "Two stages generalized moment method with applications to regressions with heteroscedasticity of unkwnown form," CEPREMAP Working Papers (Couverture Orange) 9110, CEPREMAP.
  41. Sargan, J D, 1983. "Identification and Lack of Identification," Econometrica, Econometric Society, vol. 51(6), pages 1605-33, November.
  42. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
  43. Newey, Whitney K & West, Kenneth D, 1987. "Hypothesis Testing with Efficient Method of Moments Estimation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(3), pages 777-87, October.
  44. Gibbons, Michael R & Ross, Stephen A & Shanken, Jay, 1989. "A Test of the Efficiency of a Given Portfolio," Econometrica, Econometric Society, vol. 57(5), pages 1121-52, September.
  45. Alastair R. Hall, 2000. "Covariance Matrix Estimation and the Power of the Overidentifying Restrictions Test," Econometrica, Econometric Society, vol. 68(6), pages 1517-1528, November.
  46. Chen, Xiaohong, 2007. "Large Sample Sieve Estimation of Semi-Nonparametric Models," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 6, chapter 76 Elsevier.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:4422. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.