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Duality in mean-variance frontiers with conditioning information

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  • Francisco Peñaranda
  • Enrique Sentana

Abstract

Portfolio and stochastic discount factor (SDF) frontiers are usually regarded as dual objects, and researchers sometimes use one to answer questions about the other. However, the introduction of conditioning information and active portfolio strategies alters this relationship. For instance, the unconditional portfolio frontier in Hansen and Richard (1987) is not dual to the unconditional SDF frontier in Gallant, Hansen and Tauchen (1990). We characterise the dual objects to those frontiers, and relate them to the frontiers generated with managed portfolios, which are commonly used in empirical work. We also study the implications of a safe asset and other special cases.

Suggested Citation

  • Francisco Peñaranda & Enrique Sentana, 2007. "Duality in mean-variance frontiers with conditioning information," Economics Working Papers 1058, Department of Economics and Business, Universitat Pompeu Fabra.
  • Handle: RePEc:upf:upfgen:1058
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    3. David Martinez-Miera & Rafael Repullo, 2010. "Does Competition Reduce the Risk of Bank Failure?," Review of Financial Studies, Society for Financial Studies, vol. 23(10), pages 3638-3664, October.
    4. Francisco Peñaranda, 2009. "Understanding Portfolio Efficiency with Conditioning Information," FMG Discussion Papers dp626, Financial Markets Group.
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    6. Marie-Claude Beaulieu & Jean-Marie Dufour & Lynda Khalaf, 2020. "Arbitrage Pricing, Weak Beta, Strong Beta: Identification-Robust and Simultaneous Inference," Cahiers de recherche 15-2020, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
    7. Vigo Pereira, Caio, 2021. "Portfolio efficiency with high-dimensional data as conditioning information," International Review of Financial Analysis, Elsevier, vol. 77(C).

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    More about this item

    Keywords

    Asset Pricing; Dynamic Portfolio Strategies; Representing portfolios; Stochastic Discount Factors;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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