Consistent Testing for Stochastic Dominance: A Subsampling Approach

42 Pages Posted: 5 Mar 2002

See all articles by Oliver B. Linton

Oliver B. Linton

University of Cambridge

Esfandiar Maasoumi

Southern Methodist University (SMU) - Department of Economics

Yoon-Jae Whang

Seoul National University - School of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: March 15, 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 tests are consistent.

Keywords: Bootstrap, Prospect Theory, Stochastic Dominance

JEL Classification: C12, C14, C15, C52

Suggested Citation

Linton, Oliver B. and Maasoumi, Esfandiar (Essie) and Whang, Yoon-Jae, Consistent Testing for Stochastic Dominance: A Subsampling Approach (March 15, 2002). Cowles Foundation Discussion Paper No. 1356. Available at SSRN: https://ssrn.com/abstract=302792

Oliver B. Linton (Contact Author)

University of Cambridge ( email )

Faculty of Economics
Cambridge, CB3 9DD
United Kingdom

Esfandiar (Essie) Maasoumi

Southern Methodist University (SMU) - Department of Economics ( email )

Dallas, TX 75275
United States
(214) 768-4298 (Phone)
(214) 768-1821 (Fax)

Yoon-Jae Whang

Seoul National University - School of Economics ( email )

San 56-1, Silim-dong, Kwanak-ku
Seoul 151-742
Korea
+82 2 80 6362 (Phone)
+82 2 86 4231 (Fax)

HOME PAGE: http://plaza.snu.ac.kr/~whang

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