Empirical Tests for Stochastic Dominance Efficiency

Research output: Contribution to journalReview article

109 Citations (Scopus)

Abstract

We derive empirical tests for the stochastic dominance efficiency of a given portfolio with respect to all possible portfolios constructed from a set of assets. The tests can be computed using straightforward linear programming. Bootstrapping techniques and asymptotic distribution theory can approximate the sampling properties of the test results and allow for statistical inference. Our results could provide a stimulus to the further proliferation of stochastic dominance for the problem of portfolio selection and evaluation. Using our tests, the Fama and French market portfolio is significantly inefficient relative to benchmark portfolios formed on market capitalization and book-to-market equity ratio.

Original languageEnglish
Pages (from-to)1905-1931
Number of pages27
JournalJournal of Finance
Volume58
Issue number5
Publication statusPublished - Oct 2003
Externally publishedYes

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Empirical test
Stochastic dominance
Sampling
Statistical inference
Benchmark portfolio
Portfolio selection
Bootstrapping
Proliferation
Linear programming
Market portfolio
Equity
Evaluation
Book-to-market
Market capitalization
Assets
Asymptotic distribution

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

Cite this

Empirical Tests for Stochastic Dominance Efficiency. / Post, Thierry.

In: Journal of Finance, Vol. 58, No. 5, 10.2003, p. 1905-1931.

Research output: Contribution to journalReview article

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