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Understanding portfolio efficiency with conditioning information
Peñaranda, Francisco
Universitat Pompeu Fabra. Departament d'Economia i Empresa
We show that unconditionally efficient returns do not achieve the maximum unconditionalSharpe ratio, neither display zero unconditional Jensen s alphas, when returns arepredictable. Next, we define a new type of efficient returns that is characterized by thoseunconditional properties. We also study a different type of efficient returns that is rationalizedby standard mean-variance preferences and motivates new Sharpe ratios and Jensen salphas. We revisit the testable implications of asset pricing models from the perspective ofthe three sets of efficient returns. We also revisit the empirical evidence on the conditionalvariants of the CAPM and the Fama-French model from a portfolio perspective.
2009-03-23
Finance and Accounting
conditional capm
dynamic portfolio strategies
jensen's alpha
mean-variance frontiers
representing portfolios
sharpe ratio
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Working Paper
         

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