The author would like to thank participants at the 2010 French Finance Association meeting in St. Malo and the referee for their extremely helpful comments and suggestions.
THE ECONOMIC SIGNIFICANCE OF CONDITIONING INFORMATION ON PORTFOLIO EFFICIENCY IN THE PRESENCE OF COSTLY SHORT-SELLING
Article first published online: 5 MAR 2012
© 2012 The Southern Finance Association and the Southwestern Finance Association
Journal of Financial Research
Volume 35, Issue 1, pages 115–135, Spring 2012
How to Cite
Taylor, N. (2012), THE ECONOMIC SIGNIFICANCE OF CONDITIONING INFORMATION ON PORTFOLIO EFFICIENCY IN THE PRESENCE OF COSTLY SHORT-SELLING. Journal of Financial Research, 35: 115–135. doi: 10.1111/j.1475-6803.2011.01311.x
- Issue published online: 5 MAR 2012
- Article first published online: 5 MAR 2012
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.