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Asymptotic and Bayesian Confidence Intervals for Sharpe-Style Weights

  • Tae-Hwan Kim

Sharpe-style regression has become a widely used analytic tool in the financial community. The style regression allows one to investigate such interesting issues as style composition, style sensitivity, and style change over time. All previous methods to obtain the distribution and confidence intervals of the style coefficients are statistically valid only in the special case in which none of the true style weights are zero or one. In practice, it is quite plausible to have zero or one for the values of some style weights. In this article we apply new results and develop a comparable Bayesian method to obtain statistically valid distributions and confidence intervals regardless of the true values of style weights. Copyright 2005, Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/jjfinec/nbi015
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Article provided by Society for Financial Econometrics in its journal Journal of Financial Econometrics.

Volume (Year): 3 (2005)
Issue (Month): 3 ()
Pages: 315-343

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Handle: RePEc:oup:jfinec:v:3:y:2005:i:3:p:315-343
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  1. Donald W. K. Andrews, 1999. "Estimation When a Parameter Is on a Boundary," Econometrica, Econometric Society, vol. 67(6), pages 1341-1384, November.
  2. Donald W. K. Andrews, 2000. "Inconsistency of the Bootstrap when a Parameter Is on the Boundary of the Parameter Space," Econometrica, Econometric Society, vol. 68(2), pages 399-406, March.
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  5. Brown, Stephen J. & Goetzmann, William N., 1997. "Mutual fund styles," Journal of Financial Economics, Elsevier, vol. 43(3), pages 373-399, March.
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  8. Geweke, John, 1986. "Exact Inference in the Inequality Constrained Normal Linear Regression Model," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 1(2), pages 127-41, April.
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