Moment Conditions for Almost Stochastic Dominance

13 Pages Posted: 26 Nov 2013

See all articles by Xu Guo

Xu Guo

Hong Kong Baptist University (HKBU) - Department of Mathematics; Nanjing University of Aeronautics and Astronautics

Thierry Post

Graduate School of Business of Nazarbayev University

Wing-Keung Wong

Asia University, Department of Finance

Lixing Zhu

Hong Kong Baptist University (HKBU) - Department of Mathematics

Date Written: November 25, 2013

Abstract

This study establishes necessary conditions for Almost Stochastic Dominance criteria of various orders. These conditions take the form of restrictions on algebraic combinations of moments of the probability distributions in question. The relevant set of conditions depends on the relevant order of ASD but not on the critical value for the admissible violation area. These conditions can help to reduce the information requirement and computational burden in practical applications. A numerical example and an empirical application to historical stock market data illustrate the moment conditions. The first four moment conditions in particular seem appealing for many applications.

Keywords: decision theory; utility theory; stochastic dominance; necessary conditions; moments.

JEL Classification: C00, D81, G11.

Suggested Citation

Guo, Xu and Post, Thierry and Wong, Wing-Keung and Zhu, Lixing, Moment Conditions for Almost Stochastic Dominance (November 25, 2013). Available at SSRN: https://ssrn.com/abstract=2359674 or http://dx.doi.org/10.2139/ssrn.2359674

Xu Guo

Hong Kong Baptist University (HKBU) - Department of Mathematics ( email )

Kowloon Tong
Hong Kong
Hong Kong

Nanjing University of Aeronautics and Astronautics

Yudao Street
Nanjing,
China

Thierry Post (Contact Author)

Graduate School of Business of Nazarbayev University ( email )

53 Kabanbay Batyra Avenue
Astana, 010000
Kazakhstan

Wing-Keung Wong

Asia University, Department of Finance ( email )

Taiwan
Taiwan

Lixing Zhu

Hong Kong Baptist University (HKBU) - Department of Mathematics ( email )

Kowloon Tong
Hong Kong
Hong Kong

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