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Testing for Restricted Stochastic Dominance: Some Further Results

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  • Russell Davidson

    (McGill University and CIREQ)

Abstract

Extensions are presented to the results of Davidson and Duclos (2007), whereby the null hypothesis of restricted stochastic non dominance can be tested by both asymptotic and bootstrap tests, the latter having considerably better properties as regards both size and power. In this paper, the methodology is extended to tests of higher-order stochastic dom- inance. It is seen that, unlike the first-order case, a numerical nonlinear optimisation prob- lem has to be solved in order to construct the bootstrap DGP. Conditions are provided for a solution to exist for this problem, and efficient numerical algorithms are laid out. The em- pirically important case in which the samples to be compared are correlated is also treated, both for first-order and for higher-order dominance. For all of these extensions, the boot- strap algorithm is presented. Simulation experiments show that the bootstrap tests perform considerably better than asymptotic tests, and yield reliable inference in moderately sized samples.

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Bibliographic Info

Article provided by Rimini Centre for Economic Analysis in its journal Review of Economic Analysis.

Volume (Year): 1 (2009)
Issue (Month): 1 (September)
Pages: 34-59

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Handle: RePEc:ren:journl:v:1:y:2009:i:1:p:34-59

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Related research

Keywords: Higher-order stochastic dominance; empirical likelihood; bootstrap test; corre- lated samples;

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Cited by:
  1. Yélé Maweki Batana & Jean-Yves Duclos, 2010. "Comparing Multidimensional Poverty with Qualitative Indicators of Well-Being," Cahiers de recherche 1004, CIRPEE.
  2. VAN DE GAER, Dirk & VANDENBOSSCHE, Joost & FIGUEROA, José Luis, 2012. "Children’s health opportunities and project evaluation: Mexico’s Oportunidades program," CORE Discussion Papers 2012015, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Thanasis Stengos & Brennan S. Thompson, 2011. "Testing for Bivariate Stochastic Dominance Using Inequality Restrictions," Working Papers 1107, University of Guelph, Department of Economics and Finance.

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