Consistent Testing for Stochastic Dominance: A Subsampling Approach
50 Pages Posted: 21 Jul 2008
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Consistent Testing for Stochastic Dominance: A Subsampling Approach
Date Written: March 2002
Abstract
We study a very general setting, and propose a procedure for estimating the critical values of the extended Kolmogorov-Smirnov tests of First and Second Order Stochastic Dominance due to McFadden (1989) in the general k-prospect case. We allow for the observations to be generally serially dependent and, for the first time, we can accommodate general dependence amongst the prospects which are to be ranked. Also, the prospects may be the residuals from certain conditional models, opening the way for conditional ranking. We also propose a test of Prospect Stochastic Dominance. Our method is based on subsampling and we show that the resulting data tests are consistent.
JEL Classification: C13, C14
Suggested Citation: Suggested Citation
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