A Stochastic Dominance Approach to Spanning

20 Pages Posted: 26 Aug 2006

See all articles by Thierry Post

Thierry Post

Graduate School of Business of Nazarbayev University

Date Written: May 2002 2,

Abstract

We develop a Stochastic Dominance methodology to analyze if new assets expand theinvestment possibilities for rational nonsatiable and risk-averse investors. This methodologyavoids the simplifying assumptions underlying the traditional mean-variance approach tospanning. The methodology is applied to analyze the stock market behavior of small firms in themonth of January. Our findings suggest that the previously observed January effect isremarkably robust with respect to simplifying assumptions regarding the return distribution.

Keywords: portfolio selection, portfolio evaluation, stochastic dominance, spanning, linear programming

JEL Classification: M, G3, C19

Suggested Citation

Post, Thierry, A Stochastic Dominance Approach to Spanning (May 2002 2,). ERIM Report Series Reference No. ERS-2002-01-F&A. Available at SSRN: https://ssrn.com/abstract=370958

Thierry Post (Contact Author)

Graduate School of Business of Nazarbayev University ( email )

53 Kabanbay Batyra Avenue
Astana, 010000
Kazakhstan

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