IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Almost marginal conditional stochastic dominance

  • Denuit, Michel M.
  • Huang, Rachel J.
  • Tzeng, Larry Y.
  • Wang, Christine W.

Marginal Conditional Stochastic Dominance (MCSD) developed by Shalit and Yitzhaki (1994) gives the conditions under which all risk-averse individuals prefer to increase the share of one risky asset over another in a given portfolio. In this paper, we extend this concept to provide conditions under which most (and not all) risk-averse investors behave in this way. Instead of stochastic dominance rules, almost stochastic dominance is used to assess the superiority of one asset over another in a given portfolio. Switching from MCSD to Almost MCSD (AMCSD) helps to reconcile common practices in asset allocation and the decision rules supporting stochastic dominance relations. A financial application is further provided to demonstrate that using AMCSD can indeed improve investment efficiency.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.sciencedirect.com/science/article/pii/S037842661300486X
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 41 (2014)
Issue (Month): C ()
Pages: 57-66

as
in new window

Handle: RePEc:eee:jbfina:v:41:y:2014:i:c:p:57-66
Contact details of provider: Web page: http://www.elsevier.com/locate/jbf

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.:

as in new window
  1. K. Victor Chow, 2001. "Marginal Conditional Stochastic Dominance, Statistical Inference, And Measuring Portfolio Performance," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 24(2), pages 289-307, 06.
  2. Lizyayev, Andrey & Ruszczyński, Andrzej, 2012. "Tractable Almost Stochastic Dominance," European Journal of Operational Research, Elsevier, vol. 218(2), pages 448-455.
  3. Haim Shalit & Shlomo Yitzhaki, 2008. "How Does Beta Explain Stochastic Dominance Efficiency?," Working Papers 0813, Ben-Gurion University of the Negev, Department of Economics.
  4. Schechtman, Edna & Shelef, Amit & Yitzhaki, Shlomo & Zitikis, Ričardas, 2008. "Testing Hypotheses About Absolute Concentration Curves And Marginal Conditional Stochastic Dominance," Econometric Theory, Cambridge University Press, vol. 24(04), pages 1044-1062, August.
  5. Louis Eeckhoudt & Harris Schlesinger, 2005. "Putting Risk in its Proper Place," CESifo Working Paper Series 1462, CESifo Group Munich.
  6. Haim Shalit & Shlomo Yitzhaki, 1994. "Marginal Conditional Stochastic Dominance," Management Science, INFORMS, vol. 40(5), pages 670-684, May.
  7. Moshe Leshno & Haim Levy, 2002. "Preferred by "All" and Preferred by "Most" Decision Makers: Almost Stochastic Dominance," Management Science, INFORMS, vol. 48(8), pages 1074-1085, August.
  8. Ephraim Clark & Konstantinos Kassimatis, 2013. "International equity flows, marginal conditional stochastic dominance and diversification," Review of Quantitative Finance and Accounting, Springer, vol. 40(2), pages 251-271, February.
  9. Clark, Ephraim & Jokung, Octave & Kassimatis, Konstantinos, 2011. "Making inefficient market indices efficient," European Journal of Operational Research, Elsevier, vol. 209(1), pages 83-93, February.
  10. Clark, Ephraim & Kassimatis, Konstantinos, 2012. "An empirical analysis of marginal conditional stochastic dominance," Journal of Banking & Finance, Elsevier, vol. 36(4), pages 1144-1151.
  11. Hadar, Josef & Seo, Tae Kun, 1988. "Asset Proportions in Optimal Portfolios," Review of Economic Studies, Wiley Blackwell, vol. 55(3), pages 459-68, July.
  12. Haim Shalit & Shlomo Yitzhaki, 2003. "An Asset Allocation Puzzle: Comment," American Economic Review, American Economic Association, vol. 93(3), pages 1002-1008, June.
  13. Bali, Turan G. & Demirtas, K. Ozgur & Levy, Haim & Wolf, Avner, 2009. "Bonds versus stocks: Investors' age and risk taking," Journal of Monetary Economics, Elsevier, vol. 56(6), pages 817-830, September.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:jbfina:v:41:y:2014:i:c:p:57-66. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.