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A Test of the Efficiency of a Given Portfolio (1989)
| Venue: | In Econometrica |
| Citations: | 331 - 14 self |
BibTeX
@INPROCEEDINGS{Gibbons89atest,
author = {R. Gibbons and Tephena Ross and Jay Shanken},
title = {A Test of the Efficiency of a Given Portfolio},
booktitle = {In Econometrica},
year = {1989}
}
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Abstract
A test for the ex ante efficiency of a given portfolio of assets is analyzed. The relevant statistic has a tractable small sample distribution. Its power function is derived and used to study the sensitivity of the test to the portfolio choice and to the number of assets used to determine the ex post mean-variance efficient frontier. Several intuitive interpretations of the test are provided, including a simple mean-stan-dard deviation geometric explanation. A univariate test, equivalent to our multivariate-based method, is derived, and it suggests some useful diagnostic tools which may explain why the null hypothesis is rejected. Empirical examples suggest that the multivariate approach can lead to more appropriate conclusions than those based on traditional inference which relies on a set of dependent univariate statistics.
Keyphrases
given portfolio dependent univariate statistic ex post mean-variance efficient frontier relevant statistic univariate test multivariate approach portfolio choice simple mean-stan-dard deviation geometric explanation traditional inference several intuitive interpretation tractable small sample distribution power function appropriate conclusion ex ante efficiency multivariate-based method null hypothesis useful diagnostic tool empirical example
