Spanning analysis of stock market anomalies under Prospect Stochastic Dominance

88 Pages Posted: 9 Apr 2020 Last revised: 24 Aug 2021

See all articles by Stelios Arvanitis

Stelios Arvanitis

Athens University of Economics and Business - Department of Economics

O. Scaillet

Swiss Finance Institute - University of Geneva

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, a few 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)

Swiss Finance Institute - University of Geneva ( email )

Geneva
Switzerland

Nikolas Topaloglou

Athens University of Economics and Business ( email )

76, Patision street
Athens, GR10434
Greece

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
73
Abstract Views
806
rank
437,870
PlumX Metrics