Abstract

http://ssrn.com/abstract=573125
 
 

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Bayesian Inference and Portfolio Efficiency


Shmuel Kandel (deceased)


Deceased

Robert E. McCulloch


University of Chicago - Booth School of Business

Robert F. Stambaugh


University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER)

May 1993

NBER Working Paper No. t0134

Abstract:     
A Bayesian approach is used to investigate a sample's information about a portfolio's degree of inefficiency. With standard diffuse priors, posterior distributions for measures of portfolio inefficiency can concentrate well away from values consistent with efficiency, even when the portfolio is exactly efficient in the sample. The data indicate that the NYSE-AMEX market portfolio is rather inefficient in the presence of a riskless asset, although this conclusion is justified only after an analysis using informative priors. Including a riskless asset significantly reduces any sample's ability to produce posterior distributions supporting small degrees of inefficiency.

Number of Pages in PDF File: 47

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Date posted: December 29, 2006  

Suggested Citation

Kandel (deceased), Shmuel and McCulloch, Robert E. and Stambaugh, Robert F., Bayesian Inference and Portfolio Efficiency (May 1993). NBER Working Paper No. t0134. Available at SSRN: http://ssrn.com/abstract=573125

Contact Information

Shmuel Kandel (deceased)
Deceased
N/A
Robert E. McCulloch (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
Robert F. Stambaugh
University of Pennsylvania - The Wharton School ( email )
The Wharton School, Finance Department
University of Pennsylvania
Philadelphia, PA 19104-6367
United States
215-898-5734 (Phone)
215-898-6200 (Fax)

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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