This thesis uses the test developed by Gibbons, Ross and Shanken (1989) to examine the ex ante efficiency of Australian stock market benchmarks in the period January 1980 to October 1996, primarily with respect to investments set composed of Australian industry sectors. Such an examination corresponds with an investigation of whether an active investor exercising skill in allocating funds within this investment set could out-perform the benchmark on average, or in the long run (Grinold 1992). It is found that the All Ordinaries Accumulation Index was ex ante inefficient with respect to this investment set and hence could possibly be outperformed by active investment strategies that skilfully adjust industry exposure. However, this possibility appears to be negated if short selling is restricted.
The same framework is used to examine whether mining stocks were useful additions to a diversified industrial portfolio by testing the ex ante efficiency of the All Industrials Accumulation Index with respect to an investment set consisting of itself and various mining sector assets. Ex ante inefficiency, and hence investment value in mining stocks, is only found when short selling is permitted. Without short selling, the mining assets modelled were not even useful additions ex post (ie. even with perfect foresight). Further, this poor performance in the mining sector appears to "drag down" the ex ante efficiency of the All Ordinaries Accumulation Index. The Australian property sector is examined in a similar manner, but no ex ante value is found.
The final tests examine the ex ante efficiency of the All Ordinaries Accumulation Index with respect to an international investment set. In this context, ex ante efficiency can only be conclusively rejected in the sample period before October 1987.