On the dual test for SSD efficiency. With an application to momentum investment strategies

Research output: Contribution to journalArticle

15 Citations (Scopus)

Abstract

This paper analyzes the dual formulation of Post's [Post, T., 2003. Empirical tests for stochastic dominance efficiency. Journal of Finance 58, 1905-1932] test for second-order stochastic dominance (SSD) efficiency of a given investment portfolio relative to all possible portfolios formed from set of assets. In contrast to the earlier work, we (1) provide a direct proof for the dual that does not rely on expected utility theory, (2) adhere to the original definition of SSD, (3) phrase in terms of a general polyhedral portfolio possibilities set and (4) construct a SSD dominating benchmark portfolio from the optimal solution. To illustrate the dual SSD test, we apply the test to analyze the effect of short-selling restrictions on the profitability of momentum investment strategies.

Original languageEnglish
Pages (from-to)1564-1573
Number of pages10
JournalEuropean Journal of Operational Research
Volume185
Issue number3
DOIs
Publication statusPublished - Mar 16 2008

Keywords

  • Investment analysis
  • Linear programming
  • Stochastic dominance

ASJC Scopus subject areas

  • Computer Science(all)
  • Modelling and Simulation
  • Management Science and Operations Research
  • Information Systems and Management

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