Multivariate tests for stochastic dominance efficiency of a given portfolio

Thierry Post, Philippe Versijp

Research output: Contribution to journalReview article

29 Citations (Scopus)

Abstract

We develop empirical tests for stochastic dominance efficiency of a given investment portfolio relative to all possible portfolios formed from a given set of assets. Our tests use multivariate statistics, which result in superior statistical power properties compared to existing stochastic dominance efficiency tests and increase the comparability with existing mean-variance efficiency tests. Using our tests, we demonstrate that the mean-variance inefficiency of the CRSP all-share index relative to beta-sorted portfolios can be explained by tail risk not captured by variance. COPYRIGHT 2007, SCHOOL OF BUSINESS ADMINISTRATION, UNIVERSITY OF WASHINGTON.

Original languageEnglish
Pages (from-to)489-516
Number of pages28
JournalJournal of Financial and Quantitative Analysis
Volume42
Issue number2
Publication statusPublished - Jun 1 2007

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ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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