Spanning tests in return and stochastic discount factor mean-variance frontiers: A unifying approach

• Francisco Peñaranda ^[2] ; Enrique Sentana ^[1]
  1. [1] Centro de Estudios Monetarios y Financieros

     Centro de Estudios Monetarios y Financieros

     Madrid, España

     
  2. [2] London School of Economics
• Localización: Documentos de Trabajo ( CEMFI ), Nº. 10 (CEMFI Working Paper 0410, April 2004), 2004
• Idioma: inglés
• Enlaces
  • Texto completo (pdf)
• Resumen

  • We propose new approaches to test for spanning in the return and stochastic discount factor mean-variance frontiers, which assess if either the centred or uncentred mean and cost representing portfolios are shared by the initial and extended sets of assets. We show that our proposed tests are asymptotically equivalent to the existing spanning tests under the null and sequences of local alternatives, and analyse their asymptotic relative efficiency. We also extend the theory of optimal GMM inference to deal with the singularities that arise in some spanning tests. Finally, we include an empirical application to money markets in Europe.