Portfolio Choice, Information and Market Efficiency
Abstract
This paper provides an adaptation of the statistical tests of Gibbons, Ross, and Shanken (1989) to test for portfolio efficiency in two cases where theirs cannot directly be used: 1) When the portfolio whose efficiency is being tested is not included in the set of securities generating the mean-standard deviation frontier and, 2) When testing for the existence of an efficient portfolio (of a given set of L portfolios) when none of these L portfolios is included in the set of securities generating the mean-standard deviation frontier. Our tests can be used to determine the efficiency of a variety of mutual funds.
