Multivariate Tests for Stochastic Dominance Efficiency of a Given Portfolio

Post, Thierry; Versijp, P.J.P.M.

doi:10.2139/ssrn.558725

Download This Paper

Open PDF in Browser

Add Paper to My Library

Multivariate Tests for Stochastic Dominance Efficiency of a Given Portfolio

36 Pages Posted: 28 Jun 2004

See all articles by Thierry Post

Thierry Post

Graduate School of Business of Nazarbayev University

P.J.P.M. Versijp

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE); Amsterdam Business School

Date Written: September 28, 2004

Abstract

We develop empirical tests for stochastic dominance efficiency of a given investment portfolio relative to all possible portfolios formed from a set of assets. Our tests use multivariate statistical methods, which results in good statistical power properties and increases the comparability with existing mean-variance tests. Using our tests, we demonstrate that the mean-variance inefficiency of the CRSP all-share index relative to beta-sorted portfolios can be explained by tail risk not captured by variance.

Keywords: Stochastic dominance, asset pricing, portfolio efficiency

JEL Classification: G12, C14

Suggested Citation: Suggested Citation

Post, Thierry and Versijp, Philippe and Versijp, Philippe, Multivariate Tests for Stochastic Dominance Efficiency of a Given Portfolio (September 28, 2004). Available at SSRN: https://ssrn.com/abstract=558725 or http://dx.doi.org/10.2139/ssrn.558725