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Using Generalized Method of Moments to Test Mean‐Variance Efficiency
Author(s) -
MACKINLAY A. CRAIG,
RICHARDSON MATTHEW P.
Publication year - 1991
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.1540-6261.1991.tb02672.x
Subject(s) - variance (accounting) , mathematics , econometrics , statistics , one way analysis of variance , test (biology) , generalized method of moments , analysis of variance , economics , paleontology , accounting , biology , panel data
This paper develops tests of unconditional mean‐variance efflciency under weak distributional assumptions using a Generalized Method of Moments framework. These tests are potentially more robust than commonly employed tests which rely on the assumption that asset returns are normally distributed and temporarily i.i.d. Using returns for size‐based portfolios from 1926 to 1988 we show that the conclusion concerning the mean‐variance effilciency of market indexes can be sensitive to the test considered.