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The Sampling Error in Estimates of Mean-Variance Efficient Portfolio Weights



This paper presents an exact finite-sample statistical procedure for testing hypotheses about the weights of mean-variance efficient portfolios. The estimation and inference procedures on efficient portfolio weights are performed in the same way as for the coefficients in an OLS regression. OLS t- and F-statistics can be used for tests on efficient weights, and when returns are multivariate normal, these statistics have exact t and F distributions in a finite sample. Using 20 years of data on 11 country stock indexes, we find that the sampling error in estimates of the weights of a global efficient portfolio is large.

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