Coherent risk measures have received considerable attention in the recent literature. Coherent regular risk measures form an important subclass: they are empirically identifiable, and, when combined with mean return, they are consistent with second order stochastic dominance. As a consequence, these risk measures are natural candidates in a mean-risk trade-off portfolio choice. In this paper we develop a mean-coherent regular risk spanning test and related performance measure. The test and the performance measure can be implemented by means of a simple semi-parametric instrumental variable regression, where instruments have a direct link with the stochastic discount factor. We illustrate applications of the spanning test and the performance measure for several coherent regular risk measures, including the well known expected shortfall.
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Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number
99.
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