JSM 2012 Home

JSM 2012 Online Program

The views expressed here are those of the individual authors and not necessarily those of the JSM sponsors, their officers, or their staff.

Online Program Home

Abstract Details

Activity Number: 574
Type: Contributed
Date/Time: Wednesday, August 1, 2012 : 2:00 PM to 3:50 PM
Sponsor: Business and Economic Statistics Section
Abstract - #304642
Title: Optimal Orthogonal Portfolios with Conditioning Information
Author(s): Andrew Siegel*+ and Wayne E. Ferson
Companies: University of Washington and University of Southern California
Address: Paccar Hall, Seattle, WA, 98195-3226, United States
Keywords: Asset Pricing Tests ; Optimal Portfolios ; Portfolio Management

Optimal orthogonal portfolios are a central feature of tests of asset pricing models and are important in active portfolio management problems. The portfolios combine with a benchmark portfolio to form ex ante mean variance efficient portfolios. We derive and characterize optimal orthogonal portfolios in the presence of conditioning information in the form of a set of lagged instruments. In this setting, studied by Hansen and Richard (1987), the conditioning information is used to optimize with respect to the unconditional moments. We present an empirical illustration of the properties of the optimal orthogonal portfolios. From an asset pricing perspective, a standard stock market index is far from efficient when portfolios trade based on lagged interest rates and dividend yields. From an active portfolio management perspective, the example shows that a strong tilt toward bonds improves the efficiency of equity portfolios.

The address information is for the authors that have a + after their name.
Authors who are presenting talks have a * after their name.

Back to the full JSM 2012 program

2012 JSM Online Program Home

For information, contact jsm@amstat.org or phone (888) 231-3473.

If you have questions about the Continuing Education program, please contact the Education Department.