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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.

Suggested Citation

  • Wayne E. Ferson & Andrew F. Siegel, 2006. "Testing Portfolio Efficiency with Conditioning Information," NBER Working Papers 12098, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:12098
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    References listed on IDEAS

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    Cited by:

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    2. Peñaranda, Francisco & Sentana, Enrique, 2016. "Duality in mean-variance frontiers with conditioning information," Journal of Empirical Finance, Elsevier, vol. 38(PB), pages 762-785.
    3. Francisco Peñaranda, 2009. "Understanding Portfolio Efficiency with Conditioning Information," FMG Discussion Papers dp626, Financial Markets Group.
    4. Jonathan Fletcher & Patricia Ntozi-Obwale, 2008. "Arbitrage Bounds and UK Unit Trust Performance," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 35(3-4), pages 580-600.
    5. Hunter, David & Kandel, Eugene & Kandel, Shmuel & Wermers, Russ, 2009. "Endogenous benchmarks," CFR Working Papers 10-02, University of Cologne, Centre for Financial Research (CFR).
    6. 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 Economia Aplicada, Estudios de Economia Aplicada, vol. 26, pages 257-278, Septiembr.

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    More about this item

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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