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A Kolmogorov-Smirnov type test for shortfall dominance against parametric alternatives

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Author Info

  • Michel Denuit

    ()
    (University of Louvain)

  • Anne-Cécile Goderniaux

    ()
    (Haute Ecole Blaise Pascal Virton)

  • Olivier Scaillet

    ()
    (HEC, University of Geneva and FAME)

Abstract

This paper proposes a Kolmogorov-type test for the shortfall order (also known in the literature as the right-spread or excess-wealth order) against parametric alternatives. In the case of the null hypothesis corresponding to the Negative Exponential distribution, this provides a test for the new better than used in expectation (NBUE) property. Such a test is particularly useful in reliability applications as well as duration and income distribution analysis. The theoretical properties of the testing procedure are established. Simulation studies reveal that the test proposed in this paper performs well, even with moderate sample sizes. Applications to real data, namely chief executive officer (CEO) compensation data and flight delay data, illustrate the empirical relevance of the techniques described in this paper.

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Bibliographic Info

Paper provided by International Center for Financial Asset Management and Engineering in its series FAME Research Paper Series with number rp143.

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Date of creation: May 2005
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Handle: RePEc:fam:rpseri:rp143

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Related research

Keywords: Right-spread order; Excess-wealth order; New better than used in expectation; Bootstrap; Reliability; CEO compensation; Flight delay;

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  1. Garry F. Barrett & Stephen G. Donald, 2003. "Consistent Tests for Stochastic Dominance," Econometrica, Econometric Society, vol. 71(1), pages 71-104, January.
  2. Belzunce, F. & Pinar, J. F. & Ruiz, J. M., 2001. "A family of tests for right spread order," Statistics & Probability Letters, Elsevier, vol. 54(1), pages 79-92, August.
  3. Abadie A., 2002. "Bootstrap Tests for Distributional Treatment Effects in Instrumental Variable Models," Journal of the American Statistical Association, American Statistical Association, vol. 97, pages 284-292, March.
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