Portfolio Efficiency and Discount Factor Bounds with Conditioning Information: A Unified Approach

41 Pages Posted: 4 Mar 2002

See all articles by Abhay Abhyankar

Abhay Abhyankar

University of Exeter Business School, University of Exeter

Devraj Basu

SKEMA Business School - Lille Campus

Alexander Stremme

University of Warwick - Finance Group

Date Written: August 2002

Abstract

In this paper, we develop a unified framework for the study of mean-variance efficiency and discount factor bounds in the presence of conditioning information. We extend the Hilbert space framework of Hansen and Richard (1987) to obtain new characterizations of the efficient portfolio frontier and variance bounds on discount factors, as functions of the conditioning information. We introduce a covariance-orthogonal representation of the asset return space, which allows us to derive several new results, and provide a portfolio-based interpretation of existing results. Our analysis is inspired by, and extends the recent work of Ferson and Siegel (2001,2002), and Bekaert and Liu (2001). Our results have several important applications in empirical asset pricing, such as the construction of portfolio-based tests of asset pricing models, conditional measures of portfolio performance, and tests of return predictability.

JEL Classification: G11, G12

Suggested Citation

Abhyankar, Abhay and Basu, Devraj and Stremme, Alexander, Portfolio Efficiency and Discount Factor Bounds with Conditioning Information: A Unified Approach (August 2002). EFA 2002 Berlin Meetings Presented Paper; Cass Business School Research Paper. Available at SSRN: https://ssrn.com/abstract=301859 or http://dx.doi.org/10.2139/ssrn.301859

Abhay Abhyankar

University of Exeter Business School, University of Exeter ( email )

Streatham Court
Exeter, EX4 4PU
United Kingdom

Devraj Basu

SKEMA Business School - Lille Campus ( email )

Avenue Willy Brandt, Euralille
Lille, 59777
France

Alexander Stremme (Contact Author)

University of Warwick - Finance Group ( email )

Gibbet Hill Rd
Coventry, CV4 7AL
Great Britain
+44 (0) 2476 - 522 066 (Phone)
+44 (0) 2476 - 523 779 (Fax)

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