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Consistent testing for stochastic dominance: a subsampling approach

  • Oliver Linton
  • Esfandiar Maasoumi
  • Yoon-Jae Whang

We propose a procedure for estimating the critical values of the Klecan, McFadden, and McFadden (1990) test for first and second order stochastic dominance in the general k-prospect case. Our method is based on subsampling bootstrap. We show that the resulting test is consistent. We allow for correlation amongst the prospects and for the observations to be auto-correlated over time. Importantly, the prospects may be the residuals from certain conditional models.

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File URL: http://eprints.lse.ac.uk/24927/
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Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 24927.

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Length: 37 pages
Date of creation: 13 Feb 2002
Date of revision:
Handle: RePEc:ehl:lserod:24927
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  1. repec:cup:etheor:v:10:y:1994:i:5:p:849-66 is not listed on IDEAS
  2. Donald W. K. Andrews, 1997. "A Conditional Kolmogorov Test," Econometrica, Econometric Society, vol. 65(5), pages 1097-1128, September.
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  10. Y.K. Tse & Xibin Zhang, 2003. "A Monte Carlo Investigation of Some Tests for Stochastic Dominance," Monash Econometrics and Business Statistics Working Papers 7/03, Monash University, Department of Econometrics and Business Statistics.
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  21. repec:cup:etheor:v:12:y:1996:i:2:p:347-59 is not listed on IDEAS
  22. Levy, Haim & Wiener, Zvi, 1998. "Stochastic Dominance and Prospect Dominance with Subjective Weighting Functions," Journal of Risk and Uncertainty, Springer, vol. 16(2), pages 147-63, May-June.
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  25. Garry F. Barrett & Stephen G. Donald, 2003. "Consistent Tests for Stochastic Dominance," Econometrica, Econometric Society, vol. 71(1), pages 71-104, January.
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  27. Ian Crawford, 1999. "Nonparametric tests of stochastic dominance in bivariate distributions, with an application to UK data," IFS Working Papers W99/28, Institute for Fiscal Studies.
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  29. Xu, K. & Fisher, G. & Wilson, D., 1995. "New Distribution Tests for Stochastic Dominance," Department of Economics at Dalhousie University working papers archive 95-02, Dalhousie, Department of Economics.
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  33. Peter Reinhard Hansen, 2001. "An Unbiased and Powerful Test for Superior Predictive Ability," Working Papers 2001-06, Brown University, Department of Economics.
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