Production-Based Asset Pricing and Economic Tracking Portfolios: Establishing a Dynamic Partial Equilibrium Link between Economic State and Investment Levels

2009 ◽  
Author(s):  
Pavan Gadiraju
Keyword(s):  
Asset Pricing ◽  
Partial Equilibrium ◽  
Economic State ◽  
Tracking Portfolios ◽  
Economic Tracking Portfolios

scholarly journals Mimicking Portfolios with Conditioning Information

2006 ◽  
Vol 41 (3) ◽  
pp. 607-635 ◽  
Author(s):  
Wayne Ferson ◽  
Andrew F. Siegel ◽  
Pisun (Tracy) Xu
Keyword(s):  
Asset Pricing ◽  
Minimum Variance ◽  
Time Varying ◽  
Potential Importance ◽  
State Variables ◽  
Pricing Research ◽  
Economic State ◽  
Conditioning Information ◽  
Mean Variance ◽  
Over Time

AbstractMimicking portfolios have long been useful in asset pricing research. In most empirical applications, the portfolio weights are assumed to be fixed over time, while in theory they may be functions of the economic state. This paper derives and characterizes mimicking portfolios in the presence of predetermined state variables, or conditioning information. The results generalize and integrate multifactor minimum variance efficiency (Fama (1996)) with conditional and unconditional mean-variance efficiency (Hansen and Richard (1987), Ferson and Siegel (2001)). Empirical examples illustrate the potential importance of time-varying mimicking portfolio weights and highlight challenges in their application.

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