Inference on sets in finance

DOI10.3982/QE387zbMATH Open1396.91810arXiv1211.4282OpenAlexW2887886715MaRDI QIDQ4586178FDOQ4586178

Authors: Victor Chernozhukov, Emre Kocatulum, Konrad Menzel 

Publication date: 12 September 2018

Published in: Quantitative Economics (Search for Journal in Brave)

Abstract: In this paper we consider the problem of inference on a class of sets describing a collection of admissible models as solutions to a single smooth inequality. Classical and recent examples include, among others, the Hansen-Jagannathan (HJ) sets of admissible stochastic discount factors, Markowitz-Fama (MF) sets of mean-variances for asset portfolio returns, and the set of structural elasticities in Chetty (2012)'s analysis of demand with optimization frictions. We show that the econometric structure of the problem allows us to construct convenient and powerful confidence regions based upon the weighted likelihood ratio and weighted Wald (directed weighted Hausdorff) statistics. The statistics we formulate differ (in part) from existing statistics in that they enforce either exact or first order equivariance to transformations of parameters, making them especially appealing in the target applications. Moreover, the resulting inference procedures are also more powerful than the structured projection methods, which rely upon building confidence sets for the frontier-determining sufficient parameters (e.g. frontier-spanning portfolios), and then projecting them to obtain confidence sets for HJ sets or MF sets. Lastly, the framework we put forward is also useful for analyzing intersection bounds, namely sets defined as solutions to multiple smooth inequalities, since multiple inequalities can be conservatively approximated by a single smooth inequality. We present two empirical examples that show how the new econometric methods are able to generate sharp economic conclusions.

Full work available at URL: https://arxiv.org/abs/1211.4282

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zbMATH Keywords

inferenceconfidence setsHansen-Jagannathan boundChetty boundsMarkowitz-Fama boundsmean-variance setsoptimization frictions

Mathematics Subject Classification ID

Statistical methods; risk measures (91G70)

Cited In (5)

• Bayesian inference for partially identified smooth convex models
• Posterior contraction and credible regions for level sets
• A geometric approach to inference in set-identified entry games
• Posterior contraction and credible sets for filaments of regression functions
• ASYMPTOTICALLY EFFICIENT ESTIMATION OF WEIGHTED AVERAGE DERIVATIVES WITH AN INTERVAL CENSORED VARIABLE

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