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

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  • Enrique Sentana

    ()

  • Francisco Penaranda

    ()

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 e.ciency. 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.

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File URL: http://www.lse.ac.uk/fmg/workingPapers/discussionPapers/fmgdps/dp497.pdf
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Bibliographic Info

Paper provided by Financial Markets Group in its series FMG Discussion Papers with number dp497.

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Date of creation: May 2004
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Handle: RePEc:fmg:fmgdps:dp497

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