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Multi-Period Stochastic Dominance

Author

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  • Haim Levy

    (The Hebrew University of Jerusalem)

  • Jacob Paroush

    (Bar-Ilan University, Ramat-Gan, Israel)

Abstract

First degree stochastic dominance rules for uncertain options (distributions of returns) have been developed for the following two cases: (a) multi-period additive utility functions, (b) univariate utility functions and compound distributions of returns. In the first case, the suggested rule is a necessary and sufficient criterion for efficiency analysis, while in the second case we provide only sufficiency conditions for dominance. For the univariate case an efficient set of portfolios can be constructed for investment groups that differ in their investment horizon. Where returns over time are independent, the longer the investment horizon the smaller the efficient set. However, the relationship between the size of the efficient set and the investment horizon is not simple when interdependence of returns is allowed.

Suggested Citation

  • Haim Levy & Jacob Paroush, 1974. "Multi-Period Stochastic Dominance," Management Science, INFORMS, vol. 21(4), pages 428-435, December.
    • Handle: RePEc:inm:ormnsc:v:21:y:1974:i:4:p:428-435
    DOI: 10.1287/mnsc.21.4.428
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    Cited by:

    1. Chen, Yi-Hsuan & Vinogradov, Dmitri V., 2021. "Coins with benefits: On existence, pricing kernel and risk premium of cryptocurrencies," IRTG 1792 Discussion Papers 2021-006, Humboldt University of Berlin, International Research Training Group 1792 "High Dimensional Nonstationary Time Series".
    2. Barbora Petrová, 2019. "Multistage portfolio optimization with multivariate dominance constraints," Computational Management Science, Springer, vol. 16(1), pages 17-46, February.
    3. King, Robert P., 1979. "Operational Techniques for Applied Decision Analysis Under Uncertainty," AAEA Fellows - Dissertations and Theses, Agricultural and Applied Economics Association, number 181951, December.
    4. Abdelaziz, F. Ben & Lang, P. & Nadeau, R., 1995. "Distributional efficiency in multiobjective stochastic linear programming," European Journal of Operational Research, Elsevier, vol. 85(2), pages 399-415, September.
    5. Simon Dietz & Anca N. Matei, 2013. "Spaces for agreement: a theory of Time-Stochastic Dominance," GRI Working Papers 137, Grantham Research Institute on Climate Change and the Environment.
    6. Abdelaziz, Fouad Ben, 2012. "Solution approaches for the multiobjective stochastic programming," European Journal of Operational Research, Elsevier, vol. 216(1), pages 1-16.
    7. Simon Dietz & Nicoleta Anca Matei, 2016. "Spaces for Agreement: A Theory of Time-Stochastic Dominance and an Application to Climate Change," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 3(1), pages 85-130.
    8. Eunhee Lee & Chang Kim & In-Moo Kim, 2015. "Equity premium over different investment horizons," Empirical Economics, Springer, vol. 48(3), pages 1169-1187, May.
    9. F. Ben Abdelaziz & P. Lang & R. Nadeau, 1999. "Dominance and Efficiency in Multicriteria Decision under Uncertainty," Theory and Decision, Springer, vol. 47(3), pages 191-211, December.

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