Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/129350
Authors: 
Arvanitis, Stelios
Hallam, Mark
Post, Thierry
Year of Publication: 
2015
Series/Report no.: 
Koç University-TÜSİAD Economic Research Forum Working Paper Series 1505
Abstract: 
This study develops and implements a theory and method for analyzing whether introducing new securities or relaxing investment constraints improves the investment opportunity set for risk averse investors. We develop a test procedure for 'stochastic spanning' for two nested polyhedral portfolio sets based on subsampling and Linear Programming. The procedure is statistically consistent and asymptotically exact for a class of weakly dependent processes. Using the stochastic spanning tests, we accept market portfolio efficiency but reject two-fund separation in standard data sets of historical stock market returns. The divergence between the results of the two tests illustrates the role for higher-order moment risk in portfolio choice and challenges representative-investor models of capital market equilibrium.
Subjects: 
Portfolio choice
Stochastic Dominance
Spanning
Subsampling
Linear Programming
Asset Pricing
JEL: 
C61
D81
G11
Document Type: 
Working Paper

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