A Test for Mean-Variance Efficiency of a given Portfolio under Restrictions
2005-06-28
Research Paper
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This study proposes a test for mean-variance efficiency of a given portfolio under general linear investment restrictions. We introduce a new definition of pricing error or “alpha” and as an efficiency measure we propose to use the largest positive alpha for any vertex of the portfolio possibilities set. To allow for statistical inference, we derive the asymptotic least favorable sampling distribution of this test statistic. Using the new test, we cannot reject market portfolio efficiency relative to beta decile stock portfolios if short-selling is not allowed.
Keywords
Classifications using
Journal of Economic Literature (JEL) Classification System
- G3 : Corporate Finance and Governance
- G12 : Asset Pricing
- M : Business Administration and Business Economics; Marketing; Accounting
Automatically Extracted Terms
- portfolio
- efficiency
- alpha
- mean-variance
- asset
- portfolio possibilities
- market
- return
- distribution
- market portfolio
- sample
- restriction
- stock
- figure
- possibility
- mean-variance efficiency
- market portfolio efficiency
- constraint
- test statistic
- investment restrictions
