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A Monte Carlo Investigation of Some Tests for Stochastic Dominance

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Author Info
Y.K. Tse
Xibin Zhang ()

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Abstract

This paper compares the performance of several tests for stochastic dominance up to order three using Monte Carlo methods. The tests considered are the Davidson and Duclos (2000) test, the Anderson test (1996) and the Kaur, Rao and Singh (1994) test. Only unpaired samples of independent observations are considered, as this is a restriction for both the Anderson and Kaur-Rao-Singh tests. We find that the Davidson-Duclos test appears to be the best. The Kaur-Rao-Singh test is overly conservative and does not compare favorably against the Davidson-Duclos and Anderson tests in terms of power.

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File URL: http://www.buseco.monash.edu.au/depts/ebs/pubs/wpapers/2003/wp7-03.pdf
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Publisher Info
Paper provided by Monash University, Department of Econometrics and Business Statistics in its series Monash Econometrics and Business Statistics Working Papers with number 7/03.

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Length: 29 pages
Date of creation: Mar 2003
Date of revision:
Handle: RePEc:msh:ebswps:2003-7

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Related research
Keywords: Burr distribution; Income distribution; Monte Carlo method; Portfolio investment; Stochastic dominance; Union-intersection test;

Find related papers by JEL classification:
C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Hypothesis Testing
D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. repec:cup:etheor:v:10:y:1994:i:5:p:849-66 is not listed on IDEAS
  2. Oliver Linton & Esfandiar Maasoumi & Yoon-Jae Whang, 2002. "Consistent Testing for Stochastic Dominance: A Subsampling Approach," STICERD - Econometrics Paper Series /2002/433, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE. [Downloadable!]
    Other versions:
  3. Kaur, Amarjot & Prakasa Rao, B.L.S. & Singh, Harshinder, 1994. "Testing for Second-Order Stochastic Dominance of Two Distributions," Econometric Theory, Cambridge University Press, vol. 10(05), pages 849-866, December. [Downloadable!]
  4. Beach, Charles M & Davidson, Russell, 1983. "Distribution-Free Statistical Inference with Lorenz Curves and Income Shares," Review of Economic Studies, Blackwell Publishing, vol. 50(4), pages 723-35, October. [Downloadable!] (restricted)
  5. Heshmati, Almas & Maasoumi, Esfandiar, 1998. "Stochastic Dominance Amongst Swedish Income Distributions," Working Paper Series in Economics and Finance 279, Stockholm School of Economics.
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  6. Wolak, Frank A., 1989. "Testing inequality constraints in linear econometric models," Journal of Econometrics, Elsevier, vol. 41(2), pages 205-235, June. [Downloadable!] (restricted)
  7. Russell Davidson & Jean-Yves Duclos, 2000. "Statistical Inference for Stochastic Dominance and for the Measurement of Poverty and Inequality," Econometrica, Econometric Society, vol. 68(6), pages 1435-1464, November.
    Other versions:
  8. Kuan Xu & L. Osberg, 1998. "A distribution-free test for deprivation dominance," Econometric Reviews, Taylor and Francis Journals, vol. 17(4), pages 415-429. [Downloadable!] (restricted)
    Other versions:
  9. Valentino Dardanoni & Antonio Forcina, 1999. "Inference for Lorenz curve orderings," Econometrics Journal, Royal Economic Society, vol. 2(1), pages 49-75.
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Maasoumi, Esfandiar & Almas Heshmati, 2003. "Evaluating Dominance Ranking of PSID Incomes by various Household Attributes," Departmental Working Papers 0509, Southern Methodist University, Department of Economics. [Downloadable!]
    Other versions:
  2. Lean Hooi Hooi & Wong Wing Keung & Russell Smyth, 2005. "Revisiting Calender Anomolies in Asian Stock Markets Using a Stochastic Dominance Approach," Monash Economics Working Papers 16/05, Monash University, Department of Economics. [Downloadable!]
    Other versions:
  3. Dominic Gasbarro & Wing-Keung Wong & J. Kenton Zumwalt, 2007. "Stochastic Dominance Analysis of iShares," European Journal of Finance, Taylor and Francis Journals, vol. 13(1), pages 89-101, January. [Downloadable!] (restricted)
    Other versions:
  4. Dahl, Bruce L. & Wilson, William W. & Nganje, William, 2004. "Stochastic Dominance in Wheat Variety Development and Release Strategies," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 29(01), April. [Downloadable!]
  5. Marcus Asplund & Volker Nocke, 2003. "Firm Turnover in Imperfectly Competitive Markets," PIER Working Paper Archive 03-010, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania. [Downloadable!]
  6. Oliver Linton & Kyungchul Song & Yoon-Jae Whang, 2008. "Bootstrap tests of stochastic dominance with asymptotic similarity on the boundary," CeMMAP working papers CWP08/08, Centre for Microdata Methods and Practice, Institute for Fiscal Studies. [Downloadable!]
    Other versions:
  7. Oliver Linton & Esfandiar Maasoumi & Whang, Yoon-Jae, 2002. "Consistent Testing for Stochastic Dominance: A Subsampling Approach," Cowles Foundation Discussion Papers 1356, Cowles Foundation, Yale University, revised Mar 2002. [Downloadable!]
    Other versions:
  8. Duangkamon Chotikapanich & William E. Griffiths, 2006. "Bayesian Assessment of Lorenz and Stochastic Dominance in Income Distributions," Department of Economics - Working Papers Series 960, The University of Melbourne. [Downloadable!]
  9. David Maddison, 2005. "Are There Too Many Revivals on Broadway? A Stochastic Dominance Approach," Journal of Cultural Economics, Springer, vol. 29(4), pages 325-334, November. [Downloadable!] (restricted)
  10. Vinod Mishra & Russell Smyth, 2008. "An Examination Of The Impact Of India'S Performance In One-Day Cricket Internationals On The Indian Stock Market," Monash Economics Working Papers 09/08, Monash University, Department of Economics. [Downloadable!]
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