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Consistent Testing for Stochastic Dominance: A Subsampling Approach

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  • Oliver Linton
  • Esfandiar Maasoumi
  • Yoon-Jae Whang

Abstract

We study a very general setting, and propose a procedure for estimating the critical values of the extended Kolmogorov-Smirnov tests of First and Second Order Stochastic Dominance due to McFadden (1989) in the general k-prospect case. We allow for the observations to be generally serially dependent and, for the first time, we can accommodate general dependence amongst the prospects which are to be ranked. Also, the prospects may be the residuals from certain conditional models, opening the way for conditional ranking. We also propose a test of Prospect Stochastic Dominance. Our method is based on subsampling and we show that the resulting data tests are consistent.

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Bibliographic Info

Paper provided by Suntory and Toyota International Centres for Economics and Related Disciplines, LSE in its series STICERD - Econometrics Paper Series with number /2002/433.

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Date of creation: Mar 2002
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Handle: RePEc:cep:stiecm:/2002/433

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Web page: http://sticerd.lse.ac.uk/_new/publications/default.asp

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Keywords: Prospect theory; stochastic dominance; stochastic equicontinuity; subsampling.;

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References

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