36 Pages Posted: 28 Jun 2004
Date Written: September 28, 2004
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, 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