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Testing for Stochastic Dominance Efficiency

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Author Info

  • Olivier Scaillet

    (HEC, University of Geneva and FAME)

  • Nikolas Topaloglou

    (HEC, University of Geneva)

Abstract

We consider consistent tests for stochastic dominance efficiency at any order of a given portfolio with respect to all possible portfolios constructed from a set of assets. We propose and justify approaches based on simulation and the block bootstrap to achieve valid inference in a time series setting. The test statistics and the estimators are computed using linear and mixed integer programming methods. The empirical application shows that the Fama and French market portfolio is FSD and SSD efficient, although it is mean-variance inefficient.

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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 rp154.

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Date of creation: Jul 2005
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Handle: RePEc:fam:rpseri:rp154

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Related research

Keywords: Nonparametric; Stochastic Ordering; Dominance Efficiency; Linear Programming; Mixed Integer Programming; Simulation; Bootstrap;

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Cited by:
  1. Mehmet Pinar & Thanasis Stengos & M. Ege Yazgan, 2012. "Is there an Optimal Forecast Combination? A Stochastic Dominance Approach to Forecast Combination Puzzle," Working Paper Series 17_12, The Rimini Centre for Economic Analysis.
  2. Jesús Gonzalo & José Olmo, 2010. "Conditional stochastic dominance tests in dynamic settings," Economics Working Papers we1029, Universidad Carlos III, Departamento de Economía.
  3. Martin Branda & Miloš Kopa, 2012. "DEA-Risk Efficiency and Stochastic Dominance Efficiency of Stock Indices," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 62(2), pages 106-124, May.
  4. Miguel A. Delgado & Juan Carlos Escanciano, 2011. "Conditional stochastic dominance testing," Economics Working Papers we1138, Universidad Carlos III, Departamento de Economía.
  5. Mehmet Pinar & Thanasis Stengos & Nikolas Topaloglou, 2013. "Measuring human development: a stochastic dominance approach," Journal of Economic Growth, Springer, vol. 18(1), pages 69-108, March.
  6. Ibarra, Raul, 2013. "A spatial dominance approach to evaluate the performance of stocks and bonds: Does the investment horizon matter?," The Quarterly Review of Economics and Finance, Elsevier, vol. 53(4), pages 429-439.
  7. Agliardi, Elettra & Agliardi, Rossella & Pinar, Mehmet & Stengos, Thanasis & Topaloglou, Nikolas, 2012. "A new country risk index for emerging markets: A stochastic dominance approach," Journal of Empirical Finance, Elsevier, vol. 19(5), pages 741-761.
  8. Elettra Agliardi & Mehmet Pinar & Thanasis Stengos, 2013. "A New Index of Environmental Quality Based on Greenhouse Gas Emissions," Working Paper Series 12_13, The Rimini Centre for Economic Analysis.

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