Multivariate Tests for Stochastic Dominance Efficiency of a Given Portfolio

36 Pages Posted: 28 Jun 2004  

Thierry Post

Koc University - Graduate School of Business

P.J.P.M. Versijp

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

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

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

Thierry Post (Contact Author)

Koc University - Graduate School of Business ( email )

Rumelifeneri Yolu
34450 Sariyer
Istanbul
Turkey

Philippe Versijp

Amsterdam Business School ( email )

Roetersstraat 18
Amsterdam, 1018 WB
Netherlands

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

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