Tests of Mean-Variance Spanning

66 Pages Posted: 6 Sep 2000 Last revised: 14 Mar 2008

See all articles by Raymond Kan

Raymond Kan

University of Toronto - Rotman School of Management

Guofu Zhou

Washington University in St. Louis - John M. Olin Business School

Date Written: March 2008


In this paper, we conduct a comprehensive study of tests for mean-variance spanning. Under the popular regression framework of Huberman and Kandel (1987), we provide geometric interpretations of three asymptotic tests (likelihood ratio, Wald, and Lagrange multiplier) of mean-variance spanning. Under normality assumption, we present their exact distributions and analyze their power comprehensively. Under general distributional assumptions, we review spanning tests based on the generalized method of moments (GMM), provide new GMM spanning test, and evaluate their performance. In addition, we compare the performance of various spanning tests in the regression framework with those cast in the stochastic discount factor framework. Our results suggest that the two set-ups have similar properties when returns are normally distributed, but the regression framework performs better when returns follow a multivariate Student-t distribution.

JEL Classification: C10, G12

Suggested Citation

Kan, Raymond and Zhou, Guofu, Tests of Mean-Variance Spanning (March 2008). AFA 2001 New Orleans Meetings, OLIN Working Paper No. 99-05, Rotman School of Management Working Paper, Available at SSRN: https://ssrn.com/abstract=231522 or http://dx.doi.org/10.2139/ssrn.231522

Raymond Kan (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S3E6
416-978-4291 (Phone)
416-971-3048 (Fax)

Guofu Zhou

Washington University in St. Louis - John M. Olin Business School ( email )

Washington University
Campus Box 1133
St. Louis, MO 63130-4899
United States
314-935-6384 (Phone)
314-658-6359 (Fax)

HOME PAGE: http://apps.olin.wustl.edu/faculty/zhou/

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