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Using Bootstrap to Test Mean-Variance Efficiency of a Given Portfolio

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  • Pin-Huang Chou

    (National Central University)

Abstract

This paper proposes tests of unconditional mean-variance efficiency using bootstrap method that does not depend on specific distributional assumptions. We reject the mean-variance efficiency of the CRSP value- weighted stock index for five of the seven consecutive ten-year subperiods from 1926 to 1993, whereas the F-test of Gibbons, Ross, and Shanken (GRS, 1989) only rejects two of the seven subperiods. A further examination of the size of the tests reveals that, under various alternative distributional specifications for the error terms, the GRS test tends to over-reject the null hypothesis, while the bootstrap test has sizes close to the nominal levels. However, the GRS test has a slightly higher power than the bootstrap test.

Suggested Citation

  • Pin-Huang Chou, 1996. "Using Bootstrap to Test Mean-Variance Efficiency of a Given Portfolio," Finance 9609002, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpfi:9609002
    Note: Type of Document - Tex ; prepared on IBM PC - PC-TEX; to print on PostScript; pages: 24; figures: .
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    References listed on IDEAS

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    Cited by:

    1. Prono, Todd, 2015. "Market proxies as factors in linear asset pricing models: Still living with the roll critique," Journal of Empirical Finance, Elsevier, vol. 31(C), pages 36-53.
    2. Todd Prono, 2009. "Market proxies, correlation, and relative mean-variance efficiency: still living with the roll critique," Supervisory Research and Analysis Working Papers QAU09-3, Federal Reserve Bank of Boston.

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    More about this item

    Keywords

    bootstrap hypothesis test; mean-variance efficiency; elliptical distribution;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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