Testing Portfolio Efficiency with Conditioning Information

54 Pages Posted: 14 May 2006 Last revised: 24 Jul 2010

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)

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Date Written: March 2006

Abstract

We develop asset pricing models' implications for portfolio efficiency when there is conditioning information in the form of a set of lagged instruments. A model of expected returns identifies a portfolio that should be minimum variance efficient with respect to the conditioning information. Our tests refine previous tests of portfolio efficiency, using the conditioning information optimally. We reject the efficiency of all static or time-varying combinations of the three Fama-French (1996) factors with respect to the conditioning information and also the conditional efficiency of time-varying combinations of the factors, given standard lagged instruments.

Suggested Citation

Ferson, Wayne E. and Siegel, Andrew F., Testing Portfolio Efficiency with Conditioning Information (March 2006). NBER Working Paper No. w12098, Available at SSRN: https://ssrn.com/abstract=892123

Wayne E. Ferson (Contact Author)

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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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