A Strategy-Proof Test of Portfolio Returns
Traditional methods for analyzing portfolio returns often rely on multifactor risk assessment, and tests of significance are typically based on variants of the t-test.� This approach has serious limitations when analyzing the returns from dynamically traded portfolios that include derivative positions, because standard tests of significance can be 'gamed' using options trading strategies.� To deal with this problem we propose a test that assumes nothing about the structure of returns except that they form a martingale difference.� Although the test is conservative and corrects for unrealized tail risk, the loss in power is small at high levels of significance.
|Date of creation:||01 Sep 2011|
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