Conditional stochastic dominance tests in dynamic settings
AbstractThis paper proposes nonparametric consistent tests of conditional stochastic dominance of arbitrary order in a dynamic setting. The novelty of these tests lies in the nonparametric manner of incorporating the information set into the test. The test allows for general forms of unknown serial and mutual dependence between random variables, and has an asymptotic distribution that can be easily approximated by simulation. This method has good finite-sample performance. These tests are applied to determine the investment efficiency between U S industry portfolios conditional on the dynamics of the market portfolio. The empirical analysis suggests that Telecommunications dominates the other sectoral portfolios under risk aversion.
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Bibliographic InfoPaper provided by Universidad Carlos III, Departamento de Economía in its series Economics Working Papers with number we1205.
Date of creation: Feb 2012
Date of revision:
Hypothesis testing; Kernel estimation; Lower partial moments; Nonparametric regression; P-value transformation; Stochastic dominance;
Other versions of this item:
- Jesús Gonzalo & José Olmo, 2010. "Conditional stochastic dominance tests in dynamic settings," Economics Working Papers we1029, Universidad Carlos III, Departamento de Economía.
- Gonzalo, Jesus & Olmo, Jose, 2013. "Conditional stochastic dominance tests in dynamic settings," Discussion Paper Series In Economics And Econometrics 1311, Economics Division, School of Social Sciences, University of Southampton.
- C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
- C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
- G1 - Financial Economics - - General Financial Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-03-14 (All new papers)
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