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Duality in Mean-Variance Frontiers with Conditioning Information

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  • Sentana, Enrique
  • Peñaranda, Francisco

Abstract

Portfolio and stochastic discount factor (SDF) frontiers are usually regarded as dual objects, and researchers sometimes use one to answer questions about the other. However, the introduction of conditioning information and active portfolio strategies alters this relationship. For instance, the unconditional portfolio frontier in Hansen and Richard (1987) is not dual to the unconditional SDF frontier in Gallant, Hansen and Tauchen (1990). We characterise the dual objects to those frontiers, and relate them to the frontiers generated with managed portfolios, which are commonly used in empirical work. We also study the implications of a safe asset and other special cases.

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  • Sentana, Enrique & Peñaranda, Francisco, 2007. "Duality in Mean-Variance Frontiers with Conditioning Information," CEPR Discussion Papers 6566, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:6566
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    3. Xiaohong Chen & Demian Pouzo, 2015. "Sieve Wald and QLR Inferences on Semi/Nonparametric Conditional Moment Models," Econometrica, Econometric Society, vol. 83(3), pages 1013-1079, May.
    4. David Martinez-Miera & Rafael Repullo, 2010. "Does Competition Reduce the Risk of Bank Failure?," The Review of Financial Studies, Society for Financial Studies, vol. 23(10), pages 3638-3664, October.
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    6. Francisco Peñaranda, 2009. "Understanding Portfolio Efficiency with Conditioning Information," FMG Discussion Papers dp626, Financial Markets Group.
    7. Vigo Pereira, Caio, 2021. "Portfolio efficiency with high-dimensional data as conditioning information," International Review of Financial Analysis, Elsevier, vol. 77(C).
    8. Francisco Peñaranda & Enrique Sentana, 2024. "Portfolio management with big data," Working Papers wp2024_2411, CEMFI.

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    More about this item

    Keywords

    Asset pricing; Dynamic portfolio strategies; Representing portfolios; Stochastic discount factors;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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