We develop empirical tests for stochastic dominance efficiency of a given investment portfolio relative to all possible portfolios formed from a given set of assets. Our tests use multivariate statistics, which result in superior statistical power properties compared to existing stochastic dominance efficiency tests and increase the comparability with existing mean-variance efficiency 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.

Additional Metadata
Keywords diversification in industry, efficient market theory, investment analysis, investments, multivariate analysis, risk assessment, stochastic analysis
Persistent URL hdl.handle.net/1765/14064
Citation
Post, G.T., & Versijp, P.J.P.M.. (2007). Multivariate Test for Stochastic Dominance efficiency of a Given Portfolio. Journal of Financial and Quantitative Analysis, 42(2), 489–515. Retrieved from http://hdl.handle.net/1765/14064