Duality in Mean-Variance Frontiers with Conditioning Information

Enrique Sentana and Peñaranda, Francisco

No 6566, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Portfolio and stochastic discount factor (SDF) frontiers are usually regarded as dual objects, and researchers sometimes use one to answer questions about the other. However, the introduction of conditioning information and active portfolio strategies alters this relationship. For instance, the unconditional portfolio frontier in Hansen and Richard (1987) is not dual to the unconditional SDF frontier in Gallant, Hansen and Tauchen (1990). We characterise the dual objects to those frontiers, and relate them to the frontiers generated with managed portfolios, which are commonly used in empirical work. We also study the implications of a safe asset and other special cases.

Keywords: Asset pricing; Dynamic portfolio strategies; Representing portfolios; Stochastic discount factors (search for similar items in EconPapers)
JEL-codes: G11 G12 (search for similar items in EconPapers)
Date: 2007-11
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Related works:
Journal Article: Duality in mean-variance frontiers with conditioning information (2016)
Working Paper: Duality in Mean-Variance Frontiers with Conditioning Information (2007)
Working Paper: Duality in mean-variance frontiers with conditioning information (2007)
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