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Testing Portfolio Efficiency with Conditioning Information

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  • Wayne E. Ferson
  • Andrew F. Siegel

Abstract

We develop asset pricing models' implications for portfolio efficiency when there is conditioning information in the form of a set of lagged instruments. A model of expected returns identifies a portfolio that should be minimum variance efficient with respect to the conditioning information. Our tests refine previous tests of portfolio efficiency, using the conditioning information optimally. We reject the efficiency of all static or time-varying combinations of the three Fama-French (1996) factors with respect to the conditioning information and also the conditional efficiency of time-varying combinations of the factors, given standard lagged instruments.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12098.

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Date of creation: Mar 2006
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Publication status: published as "Testing Portfolio Efficiency with Conditioning Information," with Andrew F. Siegel, 2009, Review of Financial Studies (forthcoming).
Handle: RePEc:nbr:nberwo:12098

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Cited by:
  1. Peñaranda, Francisco & Sentana, Enrique, 2007. "Duality in Mean-Variance Frontiers with Conditioning Information," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6566, C.E.P.R. Discussion Papers.
  2. 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.
  3. Francisco Peñaranda, 2009. "Understanding portfolio efficiency with conditioning information," Economics Working Papers 1146, Department of Economics and Business, Universitat Pompeu Fabra, revised Oct 2011.
  4. Hunter, David & Kandel, Eugene & Kandel, Shmuel & Wermers, Russ, 2009. "Endogenous benchmarks," CFR Working Papers 10-02, University of Cologne, Centre for Financial Research (CFR).

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