Econometrics of efficient fitted portfolios

In this paper we propose a mean variance analysis of the portfolio choice under constraints. An efficient portfolio under constraint is called fitted. We show that the fitted portfolios can consistently be estimated and used to assess the performances of the portfolio management. The explicit formula of the individual demand function for assets is also derived, and generalizes the demand function of the standard portfolio choice theory. The performance measures and associated statistics can be used to test the hypothesis of the portfolio efficiency under constraint. Moreover, we explain how to estimate subsets of constraints faced by an individual. Finally, we show that our framework is also adequate for the analysis of incomplete information.