Evaluating Portfolio Performance with Stochastic Discount Factors
AbstractThis paper provides evidence on the use of stochastic discount factors in the evaluation of portfolio performance. First we discuss evaluation in this setting, and relates it to traditional mean-variance analysis. We then use Monte Carlo experiments to examine the small sample properties of generalized method of moment (GMM) estimators, Both Size and power properties are characterized for various GMM approaches. Finally, we apply the methodology to Swedish-based mutual funds. We offer an evaluation allowing for passive as well as dynamic strategies. The conditional evaluation indicates that funds may have had superior performance over the sample period.
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Bibliographic InfoPaper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 175.
Length: 39 pages
Date of creation: May 1997
Date of revision: 01 Sep 1998
Publication status: Published in Journal of Business, 1999, pages 347-384.
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Postal: The Economic Research Institute, Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden
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GMM estimators; intersection and spanning tests; mean- variance analysis; mutual funds; small sample properties;
Other versions of this item:
- Dahlquist, Magnus & Soderlind, Paul, 1999. "Evaluating Portfolio Performance with Stochastic Discount Factors," The Journal of Business, University of Chicago Press, vol. 72(3), pages 347-83, July.
- Dahlquist, Magnus & Söderlind, Paul, 1997. "Evaluating Portfolio Performance with Stochastic Discount Factors," CEPR Discussion Papers 1663, C.E.P.R. Discussion Papers.
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
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