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Moment conditions for fractional degree stochastic dominance

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Listed:
  • Wang, Hongxia
  • Zhou, Lin
  • Dai, Peng-Fei
  • Xiong, Xiong

Abstract

The fractional degree stochastic dominance provides a continuum of stochastic dominance rules for ranking uncertain prospects, which encompasses usual integer-degree cases. This work presents its moment conditions. Specifically, the necessary conditions are provided based on the ordering of the moment-generating functions of distributions, which can be related to expected utility with constant absolute risk aversion preferences. We consider numerically many well-known distributions including normal distribution, gamma distribution and so on to show that the moment conditions are simple and computationally feasible in practical applications. We also apply our conditions to detect portfolio efficiency.

Suggested Citation

  • Wang, Hongxia & Zhou, Lin & Dai, Peng-Fei & Xiong, Xiong, 2022. "Moment conditions for fractional degree stochastic dominance," Finance Research Letters, Elsevier, vol. 49(C).
    • Handle: RePEc:eee:finlet:v:49:y:2022:i:c:s1544612322004408
    DOI: 10.1016/j.frl.2022.103241
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    References listed on IDEAS

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    More about this item

    Keywords

    Stochastic dominance; Moment-generating functions; Gamma distribution; Portfolio;
    All these keywords.

    JEL classification:

    • C00 - Mathematical and Quantitative Methods - - General - - - General
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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