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Mimicking Portfolios and Exact Arbitrage Pricing
Author(s) -
HUBERMAN GUR,
KANDEL SHMUEL,
STAMBAUGH ROBERT F.
Publication year - 1987
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1987.tb02546.x
Subject(s) - arbitrage , invertible matrix , relation (database) , set (abstract data type) , efficient frontier , arbitrage pricing theory , econometrics , mathematics , variance (accounting) , capital asset pricing model , financial economics , economics , mathematical economics , computer science , pure mathematics , portfolio , data mining , accounting , programming language
We characterize the sets of mimicking positions with returns that can serve in place of factors in an exact K ‐factor arbitrage‐pricing relation for a set of N assets. All of the sets are K ‐dimensional nonsingular linear transformations of each other. We interpret three examples of such transformations and discuss empirical considerations. We provide conditions under which the mimicking positions can be expressed as portfolios, and we characterize the relation between mimicking portfolios and the minimum‐variance frontier.