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Testing for the stochastic dominance efficiency of a given portfolio

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  • Oliver Linton

    ()
    (Institute for Fiscal Studies and Cambridge University)

  • Yoon-Jae Whang

    (Institute for Fiscal Studies and Seoul National University)

Abstract

We propose a new statistical test of the stochastic dominance efficiency of a given portfolio over a class of portfolios. We establish its null and alternative asymptotic properties, and define a method for consistently estimating critical values. We present some numerical evidence that our tests work well in moderate sized samples.

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Bibliographic Info

Paper provided by Centre for Microdata Methods and Practice, Institute for Fiscal Studies in its series CeMMAP working papers with number CWP27/12.

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Date of creation: Sep 2012
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Handle: RePEc:ifs:cemmap:27/12

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  1. Gibbons, Michael R & Ross, Stephen A & Shanken, Jay, 1989. "A Test of the Efficiency of a Given Portfolio," Econometrica, Econometric Society, vol. 57(5), pages 1121-52, September.
  2. Price, Kelly & Price, Barbara & Nantell, Timothy J, 1982. " Variance and Lower Partial Moment Measures of Systematic Risk: Some Analytical and Empirical Results," Journal of Finance, American Finance Association, vol. 37(3), pages 843-55, June.
  3. Fama, Eugene F & MacBeth, James D, 1973. "Risk, Return, and Equilibrium: Empirical Tests," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 607-36, May-June.
  4. Bawa, Vijay S. & Lindenberg, Eric B., 1977. "Abstract: Capital Market Equilibrium in a Mean-Lower Partial Moment Framework," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 12(04), pages 635-635, November.
  5. Kroll, Yoram & Levy, Haim, 1980. "Sampling Errors and Portfolio Efficient Analysis," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 15(03), pages 655-688, September.
  6. Bawa, Vijay S. & Lindenberg, Eric B., 1977. "Capital market equilibrium in a mean-lower partial moment framework," Journal of Financial Economics, Elsevier, vol. 5(2), pages 189-200, November.
  7. Post, Thierry & Versijp, Philippe, 2007. "Multivariate Tests for Stochastic Dominance Efficiency of a Given Portfolio," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 42(02), pages 489-515, June.
  8. Hogan, William W. & Warren, James M., 1974. "Toward the Development of an Equilibrium Capital-Market Model Based on Semivariance," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 9(01), pages 1-11, January.
  9. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, 03.
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