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Abstract
We find stochastic uniform inefficiency of many widely held (active) portfolios and fund strategies relative to popular benchmarks. Uniformity provides robust findings over general classes of utility (loss) functions and unknown distribution of returns. Evidence is based on statistical tests for the null of stochastic uniform inefficiency of a given portfolio. The alternative is that there is at least one portfolio that dominates it. We derive an analytical characterization of stochastic uniform inefficiency. We give the limit distribution for the empirical test statistic, and present a practical implementation with block bootstrap for consistent estimation of p-values. Our test is asymptotically exact and performs well in Monte Carlo experiments.
Supplementary Materials
Supplementary Appendix contain the details of Monte Carlo simulations as well as some auxiliary Lemmata useful for the derivation of the proofs of the Propositions.
Acknowledgments
We would like to thank the editor, the associate editor, and especially a referee for insightful comments and suggestions. All remaining errors are our own. The views expressed in this article are those of the authors and not necessarily reflect those of the Bank of Greece or the Eurosystem.
