For the popular mean-variance portfolio choice problem in the case without a risk-free asset, we develop a new portfolio strategy to mitigate estimation risk. We show that in both calibrations and real datasets, optimally combining the sample global minimum variance portfolio with a sample...

This paper is concerned with statistical inference and model evaluation in possibly misspecified and unidentified linear asset-pricing models estimated by maximum likelihood and one-step generalized method of moments. Strikingly, when spurious factors (that is, factors that are uncorrelated with...

We derive new results on the asymptotic behavior of the estimated parameters of a linear asset pricing model and their associated t-statistics in the presence of a factor that is independent of the returns. The inclusion of this "useless" factor in the model leads to a violation of the full rank...

Mimicking portfolios for factors are often used in asset pricing studies. Current practice has generally ignored the impact of estimation errors on the weights of the mimicking portfolios. We show that such a practice can lead to gross understatement of the standard errors of the estimated risk...

For many multi-factor asset pricing models proposed in the recent literature, their implied tang-ency portfolios have substantially higher sample Sharpe ratios than that of the value-weighted market portfolio. In contrast, such high sample Sharpe ratio is rarely delivered by professional fund...

This paper is concerned with statistical inference and model evaluation in possibly misspecified and unidentified linear asset-pricing models estimated by maximum likelihood and one-step generalized method of moments. Strikingly, when spurious factors (that is, factors that are uncorrelated with...

When a benchmark model is inefficient, including additional assets to the benchmark portfolios can improve its performance. In reality, however, the efficiency of a benchmark model relative to a given set of test assets is ex ante unknown, and the optimal portfolio is constructed based on...

We show how to conduct asymptotically valid tests of model comparison when the extent of model mispricing is gauged by the squared Sharpe ratio improvement measure. This is equivalent to ranking models on their maximum Sharpe ratios, effectively extending the GRS test to accommodate comparison...