Evidence of Uniform Inefficiency in Market Portfolios Based on Dominance Tests

Sofia Anyfantaki, Esfandiar Maasoumi, Jue Ren and Nikolas Topaloglou

Journal of Business & Economic Statistics, 2022, vol. 40, issue 3, 937-949

Abstract: We find stochastic uniform inefficiency of many widely held (active) portfolios and fund strategies relative to popular benchmarks. Uniformity provides robust findings over general classes of utility (loss) functions and unknown distribution of returns. Evidence is based on statistical tests for the null of stochastic uniform inefficiency of a given portfolio. The alternative is that there is at least one portfolio that dominates it. We derive an analytical characterization of stochastic uniform inefficiency. We give the limit distribution for the empirical test statistic, and present a practical implementation with block bootstrap for consistent estimation of p-values. Our test is asymptotically exact and performs well in Monte Carlo experiments.

Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:taf:jnlbes:v:40:y:2022:i:3:p:937-949

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DOI: 10.1080/07350015.2021.1888741

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