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A note on portfolio selection and stochastic dominance

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  • Mario Menegatti

    (Università di Parma)

Abstract

This note provides new and simpler conditions ensuring that, when one portfolio dominates another via stochastic dominance, a decision maker prefers the first one. The conditions are derived for the case of third-order stochastic dominance and for the general case of Nth-order stochastic dominance.

Suggested Citation

  • Mario Menegatti, 2016. "A note on portfolio selection and stochastic dominance," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 39(2), pages 327-331, November.
    • Handle: RePEc:spr:decfin:v:39:y:2016:i:2:d:10.1007_s10203-016-0179-z
    DOI: 10.1007/s10203-016-0179-z
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    References listed on IDEAS

    as
    1. Menegatti, Mario, 2015. "New results on high-order risk changes," European Journal of Operational Research, Elsevier, vol. 243(2), pages 678-681.
    2. Menezes, C & Geiss, C & Tressler, J, 1980. "Increasing Downside Risk," American Economic Review, American Economic Association, vol. 70(5), pages 921-932, December.
    3. 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 438-446, June.
    4. Kimball, Miles S, 1990. "Precautionary Saving in the Small and in the Large," Econometrica, Econometric Society, vol. 58(1), pages 53-73, January.
    5. Menegatti, Mario, 2014. "New results on the relationship among risk aversion, prudence and temperance," European Journal of Operational Research, Elsevier, vol. 232(3), pages 613-617.
    6. Whitmore, G A, 1970. "Third-Degree Stochastic Dominance," American Economic Review, American Economic Association, vol. 60(3), pages 457-459, June.
    7. Diego C. Nocetti, 2016. "Robust Comparative Statics of Risk Changes," Management Science, INFORMS, vol. 62(5), pages 1381-1392, May.
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    Cited by:

    1. Marzia Donno & Marco Magnani & Mario Menegatti, 2020. "Changes in multiplicative risks and optimal portfolio choice: new interpretations and results," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 43(1), pages 251-267, June.

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    More about this item

    Keywords

    Portfolio; Stochastic dominance; Third-order stochastic dominance; Nth-order stochastic dominance;
    All these keywords.

    JEL classification:

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

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