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

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Author Info
Francisco Peñaranda ()
Enrique Sentana

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Abstract

We propose new spanning tests that assess if the economically meaningful cost and mean representing portfolios are shared by the initial and additional assets. We show that our proposed tests are asymptotically equivalent to existing ones under local alternatives, and analyse their asymptotic relative efficiency. We extend optimal GMM inference to deal with singularities arising in some spanning tests, and show that our tests generalise naturally to situations in which we consider all active portfolio strategies. Finally, we apply our tests to strategies involving size and book-to-market sorted stock portfolios whose weights depend on the state of the credit cycle.

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Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 1101.

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Date of creation: Jun 2008
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Handle: RePEc:upf:upfgen:1101

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Related research
Keywords: Asset Pricing; Asymptotic Slopes; Dynamic Portfolio Strategies; GMM; Representing portfolios; Singular Covariance Matrix;

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Find related papers by JEL classification:
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Hypothesis Testing
C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Estimation

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  12. Ferson, Wayne E & Foerster, Stephen R & Keim, Donald B, 1993. " General Tests of Latent Variable Models and Mean-Variance Spanning," Journal of Finance, American Finance Association, vol. 48(1), pages 131-56, March. [Downloadable!] (restricted)
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  18. Sentana, E., 1997. "Least Squares Predictions and Mean-Variance Analysis," Papers 9711, Centro de Estudios Monetarios Y Financieros-.
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  19. Enrique Sentana & Francisco Penaranda, 2004. "Spanning Tests in Return and Stochastic Discount Factor Mean-Variance Frontiers: A Unifying Approach," FMG Discussion Papers dp497, Financial Markets Group. [Downloadable!] (restricted)
    Other versions:
  20. Alastair R. Hall, 2000. "Covariance Matrix Estimation and the Power of the Overidentifying Restrictions Test," Econometrica, Econometric Society, vol. 68(6), pages 1517-1528, November.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Abel Elizalde & Rafael Repullo, 2004. "Economic And Regulatory Capital. What Is The Difference?," Working Papers wp2004_0422, CEMFI. [Downloadable!]
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  2. Javier Díaz-Giménez & Josep Pijoan-Mas, 2006. "Flat Tax Reforms In The U.S.: A Boon For The Income Poor," Working Papers wp2006_0611, CEMFI. [Downloadable!]
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  3. Aleix Calveras & Juan-José Ganuza & Gerard Llobet, 2005. "Regulation And Opportunism: How Much Activism Do We Need?," Working Papers wp2005_0508, CEMFI. [Downloadable!]
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  4. Beatriz Dominguez & Juan-José Ganuza & Gerard Llobet, 2006. "R&D In The Pharmaceutical Industry: A World Of Small Innovation," Working Papers wp2006_0601, CEMFI. [Downloadable!]
    Other versions:
  5. Enrique Sentana & Francisco Peñaranda, 2007. "Duality In Mean-Variance Frontiers With Conditioning Information," Working Papers wp2007_0715, CEMFI. [Downloadable!]
    Other versions:
  6. Jose Ceron & Javier Suarez, 2006. "Hot And Cold Housing Markets: International Evidence," Working Papers wp2006_0603, CEMFI. [Downloadable!]
    Other versions:
  7. Francisco Peñaranda & Enrique Sentana, 2004. "Spanning Tests In Return And Stochastic Discount Factor Mean-Variance Frontiers: A Unifying Approach," Working Papers wp2004_0410, CEMFI. [Downloadable!]
    Other versions:
  8. Gur Huberman & Zhenyu Wang, 2005. "Arbitrage pricing theory," Staff Reports 216, Federal Reserve Bank of New York. [Downloadable!]
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