Small sample tests of portfolio efficiency

Guofu Zhou

doi:10.1016/0304-405X(91)90041-H

Small sample tests of portfolio efficiency

Guofu Zhou

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Abstract

This paper presents an eigenvalue test of the efficiency of a portfolio when there is no riskless asset, complementing the test of Gibbons, Ross, and Shanken (1989). Besides optimal upper and lower bounds, an easily-implented numerical method is provided for computing the exact P-value. Our approach makes it possible to draw statistical inferences on the efficiency of a given portfolio both in the context of the zero-beta CAPM and with respect to other linear pricing models. As an application, using monthly data for every consecutive five-year period from 1926 to 1986, we reject the efficiency of the CRSP value-weighted index for most periods.

Original language	English
Pages (from-to)	165-191
Number of pages	27
Journal	Journal of Financial Economics
Volume	30
Issue number	1
DOIs	https://doi.org/10.1016/0304-405X(91)90041-H
State	Published - Nov 1991

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title = "Small sample tests of portfolio efficiency",

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AB - This paper presents an eigenvalue test of the efficiency of a portfolio when there is no riskless asset, complementing the test of Gibbons, Ross, and Shanken (1989). Besides optimal upper and lower bounds, an easily-implented numerical method is provided for computing the exact P-value. Our approach makes it possible to draw statistical inferences on the efficiency of a given portfolio both in the context of the zero-beta CAPM and with respect to other linear pricing models. As an application, using monthly data for every consecutive five-year period from 1926 to 1986, we reject the efficiency of the CRSP value-weighted index for most periods.

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Small sample tests of portfolio efficiency

Abstract

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