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Keywords:

  • G11;
  • G17

Abstract

The economic significance of conditioning information in the presence of costly short-selling is investigated. Using a compact testing framework, results demonstrate that fixed-weight stock-bond portfolios appear inefficient with respect to stock-bond portfolios with weights determined by extant predictors. However, this result is highly dependent on ex ante knowledge of the predictor set and the ability to short-sell at low cost. In the absence of such conditions, fixed-weight stock-bond portfolios appear efficient with respect to conditioning information.