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Consistent Testing for Stochastic Dominance: A Subsampling Approach

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  • Oliver Linton

    (London School of Economics)

  • Esfandiar Maasoumi

    (Southern Methodist University)

  • Whang, Yoon-Jae

    (Ewhra University)

Abstract

We propose a procedure for estimating the critical values of the Klecan, McFadden, and McFadden (1990) test for first and second order stochastic dominance in the general k-prospect case. Our method is based on subsampling bootstrap. We show that the resulting test is consistent. We allow for correlation amongst the prospects and for the observations to be autocorrelated over time. Importantly, the prospects may be the residuals from certain conditional models.

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File URL: http://cowles.econ.yale.edu/P/cd/d13b/d1356.pdf
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Bibliographic Info

Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1356.

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Length: 51 pages
Date of creation: Feb 2002
Date of revision: Mar 2002
Publication status: Published in Review of Economic Studies (2005), 72, 735-765, Corrigendum (2007), 75: 1-5
Handle: RePEc:cwl:cwldpp:1356

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Phone: (203) 432-3702
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Web page: http://cowles.econ.yale.edu/
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Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

Related research

Keywords: Bootstrap; Prospect theory; Stochastic dominance;

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References

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  1. Bruce E. Hansen, 1994. "Stochastic Equicontinuity for Unbounded Dependent Heterogeneous Arrays," Boston College Working Papers in Economics 295., Boston College Department of Economics.
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