We study the portfolio problem of maximizing the outperformance probability over a random benchmark through dynamic trading with a fixed initial capital. Under a general incomplete market framework, this stochastic control problem can be formulated as a composite pure hypothesis testing problem....

We develop a finite-sample procedure to test for mean-variance efficiency and spanning without imposing any parametric assumptions on the distribution of model disturbances. In so doing, we provide an exact distribution-free method to test uniform linear restrictions in multivariate linear...

We present an active-learning computer exercise where students pick stocks for a portfolio. Using their selection of stocks, two different portfolios are created: 1) a portfolio that never rebalances and 2) a portfolio that continuously rebalances. They then calculate the rates of return and...

The portfolio separating distribution is sufficient and necessary for a preference-free optimal choice only if the solution is assumed to be constant a priori. The portfolio separating condition is generalized. The new distribution class allowing for correlation uncertainty is defined as...

A Micro-Founded Gordon Asset Pricing Model (MF-GAPM) is developed that allows calculation of the current E/P of an equity using reported data. In the original Gordon Model, the discounting is done assuming constant growth and a constant discount rate, with the simple result E/P = r - g where r...

This paper studies the interaction of borrowing and short-sale constraints and their ultimate effects on asset pricing properties in a simultaneous presence of the constraints in a dynamic general equilibrium model with heterogeneous risk aversions and heterogeneous beliefs in the aggregate cash...