Stochastic Spanning

Stelios Stelios Arvanitis, Mark Hallam, Thierry Post and Nikolas Topaloglou
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Stelios Stelios Arvanitis: Athens University of Economics and Business
Thierry Post: Athens University of Economics and Business

No 201510, Working Papers from Athens University Of Economics and Business, Department of Economics

Abstract: This study develops and implements methods for analyzing whether introducing new securities or relaxing investment constraints improves the investment opportunity set for risk averse investors. We develop a statistical test procedure for ‘stochastic span- ning’ for two nested polyhedral portfolio sets based on subsampling and Linear Programming. The test is statistically consistent and asymptotically exact for a class of weakly dependent processes. Using this test, we accept market portfolio efficiency but reject two - fund separation in standard data sets of historical stock market returns. The divergence between the test results for the two hypotheses illustrates the role for higher - order moment risk in portfolio choice and challenges representative - investor models of capital market equilibrium.

Keywords: Portfolio choice; Stochastic Dominance; Spanning; Subsampling; Linear Programming; Asset Pricing. (search for similar items in EconPapers)
JEL-codes: C61 D81 G11 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2015-10
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Citations: View citations in EconPapers (9)

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Related works:
Journal Article: Stochastic Spanning (2019)
Working Paper: Stochastic Spanning (2015)
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