Testing Portfolio Efficiency with Conditioning Information

53 Pages Posted: 30 Sep 2002

See all articles by Wayne E. Ferson

Wayne E. Ferson

University of Southern California; National Bureau of Economic Research (NBER)

Andrew F. Siegel

University of Washington - Department of Finance and Business Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: March 13, 2002

Abstract

We develop tests of stochastic discount factor models and portfolio efficiency when there is conditioning information, in the form of a set of lagged instruments. In this setting a model identifies a portfolio that should be efficient with respect to the conditioning information. Our tests refine previous tests of portfolio efficiency, and appear substantially more powerful than tests that do not incorporate conditioning information. The tests reject the efficiency of the three Fama-French factors in any fixed-weight combination.

Suggested Citation

Ferson, Wayne E. and Siegel, Andrew F., Testing Portfolio Efficiency with Conditioning Information (March 13, 2002). Available at SSRN: https://ssrn.com/abstract=334743 or http://dx.doi.org/10.2139/ssrn.334743

Wayne E. Ferson (Contact Author)

University of Southern California ( email )

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HOME PAGE: http://www-rcf.usc.edu/~ferson/

National Bureau of Economic Research (NBER)

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Andrew F. Siegel

University of Washington - Department of Finance and Business Economics ( email )

Box 353200
Seattle, WA 98195
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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