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An improved bootstrap test of stochastic dominance

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Listed author(s):
  • Linton, Oliver
  • Song, Kyungchul
  • Whang, Yoon-Jae

Abstract

We propose a new method of testing stochastic dominance that improves on existing tests based on the standard bootstrap or subsampling. The method admits prospects involving infinite as well as finite dimensional unknown parameters, so that the variables are allowed to be residuals from nonparametric and semiparametric models. The proposed bootstrap tests have asymptotic sizes that are less than or equal to the nominal level uniformly over probabilities in the null hypothesis under regularity conditions. This paper also characterizes the set of probabilities so that the asymptotic size is exactly equal to the nominal level uniformly. As our simulation results show, these characteristics of our tests lead to an improved power property in general. The improvement stems from the design of the bootstrap test whose limiting behavior mimics the discontinuity of the original test's limiting distribution.

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Article provided by Elsevier in its journal Journal of Econometrics.

Volume (Year): 154 (2010)
Issue (Month): 2 (February)
Pages: 186-202

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Handle: RePEc:eee:econom:v:154:y:2010:i:2:p:186-202
Contact details of provider: Web page: http://www.elsevier.com/locate/jeconom

Keywords: Stochastic dominance Inequality restrictions Bootstrap Set estimation;

Other versions of this item:

Find related papers by JEL classification:
  • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
  • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
  • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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  1. Horvath, Lajos & Kokoszka, Piotr & Zitikis, Ricardas, 2006. "Testing for stochastic dominance using the weighted McFadden-type statistic," Journal of Econometrics, Elsevier, vol. 133(1), pages 191-205, July.
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  15. Moon, Hyungsik Roger & Schorfheide, Frank, 2006. "Boosting Your Instruments: Estimation with Overidentifying Inequality Moment Conditions," CEPR Discussion Papers 5605, C.E.P.R. Discussion Papers.
  16. James J. Heckman & Hidehiko Ichimura & Petra Todd, 1998. "Matching As An Econometric Evaluation Estimator," Review of Economic Studies, Oxford University Press, vol. 65(2), pages 261-294.
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  18. Fan, Yanqin & Park, Sang Soo, 2010. "Confidence sets for some partially identified parameters," MPRA Paper 37149, University Library of Munich, Germany.
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