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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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  • 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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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, American Economic Association, vol. 85(5), pages 1088-1105, December.
  2. Christian Andrew Johnson, 2000. "Métodos de Evaluación del Riesgo para Portafolios de Inversión," Working Papers Central Bank of Chile, Central Bank of Chile 67, Central Bank of Chile.
  3. Robert J. Aumann & Roberto Serrano, 2007. "An Economic Index of Riskiness," Discussion Paper Series, The Center for the Study of Rationality, Hebrew University, Jerusalem dp446, The Center for the Study of Rationality, Hebrew University, Jerusalem.
  4. Hanoch, G & Levy, Haim, 1969. "The Efficiency Analysis of Choices Involving Risk," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 36(107), pages 335-46, July.
  5. Peter Christoffersen & Jinyong Hahn & Atsushi Inoue, 2001. "Testing and Comparing Value-at-Risk Measures," CIRANO Working Papers, CIRANO 2001s-03, CIRANO.
  6. Levy, Haim, 1973. "Stochastic Dominance, Efficiency Criteria, and Efficient Portfolios: The Multi-Period Case," American Economic Review, American Economic Association, American Economic Association, vol. 63(5), pages 986-94, December.
  7. Hadar, Josef & Russell, William R, 1969. "Rules for Ordering Uncertain Prospects," American Economic Review, American Economic Association, American Economic Association, vol. 59(1), pages 25-34, March.
  8. Chen, Zhiwu & Knez, Peter J, 1996. "Portfolio Performance Measurement: Theory and Applications," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 9(2), pages 511-55.
  9. Burton G. Malkiel, 2003. "The Efficient Market Hypothesis and Its Critics," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 17(1), pages 59-82, Winter.
  10. Sharpe, William F., 1967. "Portfolio Analysis," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 2(02), pages 76-84, June.
  11. William F. Sharpe, 1965. "Mutual Fund Performance," The Journal of Business, University of Chicago Press, University of Chicago Press, vol. 39, pages 119.
  12. Porter, R Burr & Gaumnitz, Jabk E, 1972. "Stochastic Dominance vs. Mean-Variance Portfolio Analysis: An Empirical Evaluation," American Economic Review, American Economic Association, American Economic Association, vol. 62(3), pages 438-46, June.
  13. 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, Cambridge University Press, vol. 8(01), pages 71-81, January.
  14. 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, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 14(3), pages 601-14, October.
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