Subperiod aggregation and the power of multivariate tests of portfolio efficiency

Abstract When testing portfolio efficiency, empiricists usually perform tests using subperiods and aggregate the results in some manner. Although the power of individual subperiod tests has been studied previously, little is known about the power of the aggregate test. Power is evaluated here through simulations using two different aggregation techniques. Aggregate power is substantially higher than that for a single subperiod. For example, in one scenario the aggregate power is 0.77 over a sixty-year period, but only 0.17 for each five-year subperiod. In addition, the level of power depends on the method of aggregation.