Abstract

A test for the ex ante efficiency of a given portfolio of assets is analyzed. The relevant statistic has a tractable small sample distribution. Its power function is derived and used to study the sensitivity of the test to the portfolio choice and to the number of assets used to determine the ex post mean-variance efficient frontier. Several intuitive interpretations of the test are provided, including a simple mean-standard deviation geometric explanation. A univariate test, equivalent to our multivariate-based method, is derived, and it suggests some useful diagnostic tools which may explain why the null hypothesis is rejected. Empirical examples suggest that the multivariate approach can lead to more appropriate conclusions than those based on traditional inference which relies on a set of dependent univariate statistics.

Keywords

Test (biology)PortfolioEconomicsEconometricsFinancial economicsActuarial scienceGeology

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Publication Info

Year
1989
Type
article
Volume
57
Issue
5
Pages
1121-1121
Citations
2399
Access
Closed

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Michael R. Gibbons, Stephen A. Ross, Jay Shanken (1989). A Test of the Efficiency of a Given Portfolio. Econometrica , 57 (5) , 1121-1121. https://doi.org/10.2307/1913625

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DOI
10.2307/1913625