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Bootstrap Tests of Mean-Variance Efficiency with Multiple Portfolio Groupings

Sermin Gungor and Richard Luger

Staff Working Papers from Bank of Canada

Abstract: We propose double bootstrap methods to test the mean-variance efficiency hypothesis when multiple portfolio groupings of the test assets are considered jointly rather than individually. A direct test of the joint null hypothesis may not be possible with standard methods when the total number of test assets grows large relative to the number of available time-series observations, since the estimate of the disturbance covariance matrix eventually becomes singular. The suggested residual bootstrap procedures based on combining the individual group p-values avoid this problem while controlling the overall significance level. Simulation and empirical results illustrate the usefulness of the joint mean-variance efficiency tests.

Keywords: Asset Pricing; Econometric and statistical methods; Financial markets (search for similar items in EconPapers)
JEL-codes: C12 C14 C15 G12 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2014
New Economics Papers: this item is included in nep-ecm
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Handle: RePEc:bca:bocawp:14-51