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Mimicking Portfolios with Conditioning Information

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  • Wayne E. Ferson
  • Andrew F. Siegel
  • Pisun (Tracy) Xu

Abstract

Mimicking portfolios have long been useful in asset pricing research. In most empirical applications, the portfolio weights are assumed to be fixed over time, while in theory they may be functions of the economic state. This paper derives and characterizes mimicking portfolios in the presence of predetermined state variables, or conditioning information. The results generalize and integrate multifactor minimum variance efficiency (Fama, 1996) with conditional and unconditional mean variance efficiency (Hansen and Richard (1987), Ferson and Siegel, 2001). Empirical examples illustrate the potential importance of time-varying mimicking portfolio weights and highlight challenges in their application.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11020.

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Date of creation: Jan 2005
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Publication status: published as Ferson, Wayne, Andrew F. Siegel and Pisun Xu. "Mimicking Portfolios With Conditional Information," Journal of Financial and Quantitative Analysis, 2006, v41(3,Sep), 607-635.
Handle: RePEc:nbr:nberwo:11020

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Cited by:
  1. Francisco Peñaranda, 2009. "Understanding Portfolio Efficiency with Conditioning Information," FMG Discussion Papers dp626, Financial Markets Group.
  2. Pierluigi Balduzzi & Cesare Robotti, 2005. "Asset-pricing models and economic risk premia: a decomposition," Working Paper 2005-13, Federal Reserve Bank of Atlanta.
  3. Balduzzi, Pierluigi & Robotti, Cesare, 2008. "Mimicking Portfolios, Economic Risk Premia, and Tests of Multi-Beta Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 26, pages 354-368.
  4. Wayne E. Ferson & Andrew F. Siegel, 2006. "Testing Portfolio Efficiency with Conditioning Information," NBER Working Papers 12098, National Bureau of Economic Research, Inc.
  5. Ferruz Agudo, Luis & Vargas Magallón, María & Nievas López, J., 2008. "¿Utilizan los gestores españoles de fondos de inversión información privada en sus labores de gestión?," Estudios de Economía Aplicada, Estudios de Economía Aplicada, vol. 26, pages 257-278, Septiembr.

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