Testing Portfolio Efficiency with Conditioning Information

Wayne Ferson () and Andrew F. Siegel

No 12098, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: C12 C51 C52 G12 (search for similar items in EconPapers)
Date: 2006-03
New Economics Papers: this item is included in nep-ecm, nep-fin and nep-fmk
Note: AP
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Citations: View citations in EconPapers (6)

Published as "Testing Portfolio Efficiency with Conditioning Information," with Andrew F. Siegel, 2009, Review of Financial Studies (forthcoming).

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