Journal of Financial Economics Vol. 18 No. 1 1987
On correlations and inferences about mean-variance efficiency
Abstract
A framework is presented for investigating the mean-variance efficiency of an unobservable portfolio based on its correlation with a proxy portfolio. A sensitivity analysis derives the highest correlation between the proxy and a portfolio that reverses the inference of a test of SHarpe-Lintner tangency. For example, the maximum correlation between the value-weighted NYSE-AMEX portfolio and a portfolio inferred tangent ranges from 0.76 to 0.48. We also test whether the correlation between the proxy and the tangent portfolio exceeds a given level. This hypothesis is often rejected for the NYSE-AMEX proxy at a correlation of 0.7.
- DOI
- 10.1016/0304-405x(87)90061-4
- Volume
- 18
- Issue
- 1
- Pages
- 61-90
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref