Statistical Methods in Finance 2017

Dec 16 - 19, 2017


Abstract

Measures of portfolio efficiency

by Gopal Basak

In the literature, there are various ways to obtain the degree of mean-variance (or, mean-standard deviation) efficiency of a given bench-mark return with reference to the mean-variance frontier generated by a given set of primitive assets (see Basak et al. (MGMT Sc. 2009), Briérie et al. (Finance 2013), Levy and Roll (RFS 2010)). Portfolio managers are always faced with the problem of how to choose the stocks/equity and in the presence of one riskless asset or without the choice of a risk less asset. We aim to provide measures of portfolio efficiency which are at least as good as or better than the other measures mean-variance efficiency measure proposed by Basak et al. (JEDC 2002) and Bri??rie et al (Finance 2013) and perhaps comparable with that of Levy and Roll (RFS 2010). Our method is based on Euclidean type distance and Mahalanobis type distance. We use Bootstap technique to implement and to compare the efficiendy of various measures. This idea and technique may be used in other testing scenarios.