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Testing Portfolio Efficiency with Conditioning Information

  • Wayne E. Ferson
  • Andrew F. Siegel

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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