Marginal Conditional Stochastic Dominance, Statistical Inference, and Measuring Portfolio Performance
Abstract
A simple statistical test is developed for marginal conditional stochastic dominance (MCSD). The MCSD is an extension of second-degree stochastic dominance. As such, without specification of the return-generating process, it can rank securities according to marginal changes of return distributions conditionally to the distribution of the market proxy, thereby proving a powerful technique for measuring portfolio performance. Although the MCSD test is asymptotic and conservative, under both the hypotheses of homoskedasticity and heteroskedasticity, it has power to detect the dominance alternative for samples with more than 300 observations. For an illustration, the MCSD test is applied to international equity markets. The test is able to show that nine of twenty-eight equity markets are dominated by the world market.Download Info
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Bibliographic Info
Article provided by Southern Finance Association & Southwestern Finance Association in its journal Journal of Financial Research.
Volume (Year): 24 (2001)
Issue (Month): 2 (Summer)
Pages: 289-307
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Web page: http://www.southwesternfinance.org/
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Citations
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.Cited by:
- Clark, Ephraim & Kassimatis, Konstantinos, 2011. "An alternative measure of the "world market portfolio": Determinants, efficiency, and information content," Journal of International Money and Finance, Elsevier, vol. 30(5), pages 724-748, September.
- K. Victor Chow, Bih-Shuang Huang, Ou Hu, 2007. "Marginal Conditional Stochastic Dominance Between Value and Growth," Frontiers in Finance and Economics, SKEMA Business School, vol. 4(1), pages 1-34, June.
- Zhang, Duo, 2009. "A demonstration of the non-necessity of marginal conditional stochastic dominance for portfolio inefficiency," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(2), pages 417-423, May.
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