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Consistencia de la evaluación de desempeño de inversiones financieras: Pruebas de dominación estocástica versus índices media-varianza
[Consistency in the evaluation of financial investment performance: Mean-variance versus stochastic dominance tests]

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Author Info

  • Pinto, Cristian F.
  • Acuña, Andres A.

Abstract

In this paper we analize the consistency of financial indexes and the ordering of investments based on the mean-variance and the stochastic dominance (SD) approaches. We take 47 mutual funds from the Chilean financial market in order to compute several algorithms that enable us to verify stochastic dominance relationships in their first (FSD), second (SSD), and third order (TSD). We found evidence that both approaches generate similar sets of efficient investments. However, there are important dissimilarities between the rankings elaborated according the mean-variance and the TSD criteria.

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File URL: http://mpra.ub.uni-muenchen.de/33346/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 31301.

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Date of creation: Jun 2011
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Handle: RePEc:pra:mprapa:31301

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Keywords: portfolio; risk; Sharpe index; stochastic dominance;

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  1. Grinblatt, Mark & Titman, Sheridan & Wermers, Russ, 1995. "Momentum Investment Strategies, Portfolio Performance, and Herding: A Study of Mutual Fund Behavior," American Economic Review, American Economic Association, vol. 85(5), pages 1088-1105, December.
  2. Levy, Haim, 1973. "Stochastic Dominance Among Log-Normal Prospects," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 14(3), pages 601-14, October.
  3. Chen, Zhiwu & Knez, Peter J, 1996. "Portfolio Performance Measurement: Theory and Applications," Review of Financial Studies, Society for Financial Studies, vol. 9(2), pages 511-55.
  4. Robert J. Aumann & Roberto Serrano, 2007. "An Economic Index of Riskiness," Levine's Bibliography 321307000000000836, UCLA Department of Economics.
  5. Christoffersen, Peter & Hahn, Jinyong & Inoue, Atsushi, 2001. "Testing and comparing Value-at-Risk measures," Journal of Empirical Finance, Elsevier, vol. 8(3), pages 325-342, July.
  6. Burton G. Malkiel, 2003. "The Efficient Market Hypothesis and Its Critics," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 59-82, Winter.
  7. Hanoch, G & Levy, Haim, 1969. "The Efficiency Analysis of Choices Involving Risk," Review of Economic Studies, Wiley Blackwell, vol. 36(107), pages 335-46, July.
  8. Porter, R. Burr & Wart, James R. & Ferguson, Donald L., 1973. "Efficient Algorithms for Conducting Stochastic Dominance Tests on Large Numbers of Portfolios," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 8(01), pages 71-81, January.
  9. Christian Andrew Johnson, 2000. "Métodos de Evaluación del Riesgo para Portafolios de Inversión," Working Papers Central Bank of Chile 67, Central Bank of Chile.
  10. Hadar, Josef & Russell, William R, 1969. "Rules for Ordering Uncertain Prospects," American Economic Review, American Economic Association, vol. 59(1), pages 25-34, March.
  11. William F. Sharpe, 1965. "Mutual Fund Performance," The Journal of Business, University of Chicago Press, vol. 39, pages 119.
  12. Sharpe, William F., 1967. "Portfolio Analysis," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 2(02), pages 76-84, June.
  13. Porter, R Burr & Gaumnitz, Jabk E, 1972. "Stochastic Dominance vs. Mean-Variance Portfolio Analysis: An Empirical Evaluation," American Economic Review, American Economic Association, vol. 62(3), pages 438-46, June.
  14. Levy, Haim, 1973. "Stochastic Dominance, Efficiency Criteria, and Efficient Portfolios: The Multi-Period Case," American Economic Review, American Economic Association, vol. 63(5), pages 986-94, December.
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