Working Paper: NBER ID: w12098
Authors: Wayne E. Ferson; Andrew F. Siegel
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.
Keywords: portfolio efficiency; conditioning information; asset pricing models
JEL Codes: C12; C51; C52; G12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| conditioning information (D83) | portfolio efficiency (G11) |
| conditioning information (D83) | rejection of efficiency hypotheses (D61) |
| portfolios with conditioning information (G11) | rejection of efficiency of Fama-French factors (G14) |
| use of conditioning information (D80) | rejection of market index's efficiency (G14) |
| conditioning information (D83) | enhanced ability to test efficiency in asset pricing models (G14) |