Portfolio efficiency and discount factor bounds with conditioning information: a unified approach
Abhyankar, Abhay, 1951-, Basu, Devraj and Stremme, Alexander (2004) Portfolio efficiency and discount factor bounds with conditioning information: a unified approach. Working Paper. Coventry: Warwick Business School, Financial Econometrics Research Centre. Working papers (Warwick Business School. Financial Econometrics Research Centre) (No.05-).
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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 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 (2004). 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.
|Item Type:||Working or Discussion Paper (Working Paper)|
|Subjects:||H Social Sciences > HG Finance|
|Divisions:||Faculty of Social Sciences > Warwick Business School > Financial Econometrics Research Centre
Faculty of Social Sciences > Warwick Business School
|Library of Congress Subject Headings (LCSH):||Portfolio management, Assets (Accounting), Pricing -- Mathematical models, Stochastic analysis|
|Series Name:||Working papers (Warwick Business School. Financial Econometrics Research Centre)|
|Publisher:||Warwick Business School, Financial Econometrics Research Centre|
|Place of Publication:||Coventry|
|Official Date:||December 2004|
|Number of Pages:||39|
|Status:||Not Peer Reviewed|
|Access rights to Published version:||Open Access|
Avramov, D., and T. Chordia (2003): “Stock Returns are Predictable: A Firm-Level Analysis,” working paper, University of Maryland.
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