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Type: Journal article
Title: Measuring the economic significance of mean-variance spanning
Author: Glabadanidis, P.
Citation: The Quarterly Review of Economics and Finance, 2009; 49(2):596-616
Publisher: Elsevier BV
Issue Date: 2009
ISSN: 1062-9769
Statement of
Paskalis Glabadanidis
Abstract: This paper investigates the economic significance of mean-variance spanning tests using three classical statistical tests in a unified framework. I show how to compute confidence intervals about the Sharpe ratios of tangent portfolios, the variance of return of minimum variance portfolios, as well as the certainty equivalent utility gains. I apply this statistical framework to the question of whether US investors should diversify internationally. The analysis suggests that a strong statistical rejection of the hypothesis that there is no improvement in the minimum variance portfolio’s standard deviation of return does not imply that there are no significant economic benefits to be made in terms of a substantial risk reduction. These results have important implications for empirical tests of mean-variance spanning as well as empirical assets pricing tests and minimum variance bounds on stochastic discount factors.
Rights: © 2008 The Board of Trustees of the University of Illinois. Published by Elsevier B.V. All rights reserved
RMID: 0020103319
DOI: 10.1016/j.qref.2008.01.003
Appears in Collections:Business School publications

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