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Portfolio efficiency and discount factor bounds with conditioning information: an empirical study
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Abhyankar, Abhay, Basu, Devraj and Stremme, Alexander. (2007) Portfolio efficiency and discount factor bounds with conditioning information: an empirical study. Journal of Banking & Finance, Vol.31 (No.2). pp. 419-437. ISSN 0378-4266
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Official URL: http://dx.doi.org/10.1016/j.jbankfin.2006.06.016
Abstract
Stochastic discount factor bounds provide a useful diagnostic too] for testing asset pricing models by specifying a lower bound on the variance of any admissible discount factor. In this paper, we provide a unified derivation of such bounds in the presence of conditioning information, which allows us to compare their theoretical and empirical properties. We find that, while the location of the 'unconditionally efficient (UE)' bounds of [Ferson, W., Siegel, A., 2001. The efficient use of conditioning information in portfolios. Journal of Finance 56 (3), 967-982] is statistically indistinguishable from the (theoretically) optimal bounds of [Gallant, R., Hansen, L., Tauchen, G., 1990. Using conditional moments of asset payoffs to infer the volatility of intertemporal marginal rates of substitution. Journal of Econometrics 45 (1), 141-179] (GHT), the former exhibit better sampling properties. We demonstrate that the difference in sampling variability of the UE and GHT bounds is due to the different behavior of the efficient return weights underlying their construction. (c) 2006 Elsevier B.V. All rights reserved.
| Item Type: | Journal Article |
|---|---|
| Subjects: | H Social Sciences > HG Finance H Social Sciences > HC Economic History and Conditions |
| Divisions: | Faculty of Social Sciences > Warwick Business School |
| Journal or Publication Title: | Journal of Banking & Finance |
| Publisher: | Elsevier Science BV |
| ISSN: | 0378-4266 |
| Date: | February 2007 |
| Volume: | Vol.31 |
| Number: | No.2 |
| Number of Pages: | 19 |
| Page Range: | pp. 419-437 |
| Identification Number: | 10.1016/j.jbankfin.2006.06.016 |
| Status: | Peer Reviewed |
| Publication Status: | Published |
| Access rights to Published version: | Restricted or Subscription Access |
| URI: | http://wrap.warwick.ac.uk/id/eprint/32312 |
Data sourced from Thomson Reuters' Web of Knowledge
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