Testing for Third-Order Stochastic Dominance with Diversification Possibilities
AbstractWe derive an empirical test for third-order stochastic dominance that allows fordiversification between choice alternatives. The test can be computed usingstraightforward linear programming. Bootstrapping techniques and asymptoticdistribution theory can approximate the sampling properties of the test results and allowfor statistical inference. Our approach is illustrated using real-life US stock market data.
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Bibliographic InfoPaper provided by Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam. in its series Research Paper with number ERS-2002-02-F&A.
Date of creation: 05 Feb 2002
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efficiency; stochastic dominance; portfolio selection; linear programming; portfolio evaluation;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-02-10 (All new papers)
- NEP-ECM-2002-02-22 (Econometrics)
- NEP-PKE-2002-02-15 (Post Keynesian Economics)
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