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An Improved Bootstrap Test of Stochastic Dominance

Author Info

  • Oliver Linton

    (London School of Economics)

  • Kyungchul Song

    (University of Pennsylvania)

  • Yoon-Jae Whang

    (Seoul National University)

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 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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File URL: http://cowles.econ.yale.edu/P/cd/d17a/d1713.pdf
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Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1713.

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Length: 43 pages
Date of creation: Jul 2009
Date of revision:
Publication status: Published in Journal of Econometrics (February 2010), 154(2): 186-202
Handle: RePEc:cwl:cwldpp:1713
Contact details of provider: Postal: Yale University, Box 208281, New Haven, CT 06520-8281 USA
Phone: (203) 432-3702
Fax: (203) 432-6167
Web page: http://cowles.econ.yale.edu/
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Order Information: Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

Keywords: Set estimation; Size of test; Similarity; Bootstrap; Subsampling;

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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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  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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