Multivariate Test for Stochastic Dominance efficiency of a Given Portfolio
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.
|Keywords||diversification in industry, efficient market theory, investment analysis, investments, multivariate analysis, risk assessment, stochastic analysis|
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