Abstract
We develop a direct test for examining the mean-variance efficiency of a given bench-mark asset return. Unlike traditional tests for mean-variance efficiency, this test allows for the possibility that short positions in the primitive assets may not be possible. Using this test, we cannot reject the hypothesis that the value weighted return on exchange traded stocks is mean-variance efficient with reference to the mean-variance frontier generated by the 25 stock portfolios constructed by Fama and French (J. Financial Econom. 33 (1993) 3), when short selling is not allowed.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 1195-1215 |
| Number of pages | 21 |
| Journal | Journal of Economic Dynamics and Control |
| Volume | 26 |
| Issue number | 7-8 |
| DOIs | |
| State | Published - 2002 |
Funding
Ravi Jagannathan acknowledges partial financial support from the National Science Foundation, grant SBR-9409824. We benefitted from discussions with Richard Green, K.G. Murty, G.S.R. Murthy and Bingyi Jing and insightful comments from an anonymous referee.
Keywords
- Bench-mark asset
- Mean-variance efficiency
- Stocks
- Test
ASJC Scopus subject areas
- Economics and Econometrics
- Control and Optimization
- Applied Mathematics