Spanning analysis of stock market anomalies under Prospect Stochastic Dominance

75 Pages Posted: 9 Apr 2020

See all articles by Stelios Arvanitis

Stelios Arvanitis

Athens University of Economics and Business - Department of Economics

O. Scaillet

University of Geneva GSEM and GFRI; Swiss Finance Institute; University of Geneva - Research Center for Statistics

Nikolas Topaloglou

Athens University of Economics and Business

Date Written: April 6, 2020

Abstract

We develop and implement methods for determining whether introducing new securities or relaxing investment constraints improves the investment opportunity set for prospect investors. We formulate a new testing procedure for prospect spanning for two nested portfolio sets based on subsampling and Linear Programming. In an application, we use the prospect spanning framework to evaluate whether well-known anomalies are spanned by standard factors. We find that of the strategies considered, many expand the opportunity set of the prospect type investors, thus have real economic value for them. In-sample and out-of-sample results prove remarkably consistent in identifying genuine anomalies for prospect investors.

Keywords: Nonparametric test, prospect stochastic dominance efficiency, prospect spanning, market anomaly, Linear Programming.

JEL Classification: C12, C14, C44, C58, D81, G11, G40

Suggested Citation

Arvanitis, Stelios and Scaillet, Olivier and Topaloglou, Nikolas, Spanning analysis of stock market anomalies under Prospect Stochastic Dominance (April 6, 2020). Swiss Finance Institute Research Paper No. 20-18, Available at SSRN: https://ssrn.com/abstract=3569755 or http://dx.doi.org/10.2139/ssrn.3569755

Stelios Arvanitis

Athens University of Economics and Business - Department of Economics ( email )

76 Patission Street
GR-10434 Athens
Greece

Olivier Scaillet (Contact Author)

University of Geneva GSEM and GFRI ( email )

40 Boulevard du Pont d'Arve
Geneva 4, Geneva 1211
Switzerland
+ 41 22 379 88 16 (Phone)
+41 22 389 81 04 (Fax)

HOME PAGE: http://www.scaillet.ch

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

University of Geneva - Research Center for Statistics

Geneva
Switzerland

Nikolas Topaloglou

Athens University of Economics and Business ( email )

76, Patision street
Athens, GR10434
Greece

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