Testing for Third-Order Stochastic Dominance with Diversification Possibilities
We derive an empirical test for third-order stochastic dominance that allows for diversification between choice alternatives. The test can be computed using straightforward linear programming. Bootstrapping techniques and asymptotic distribution theory can approximate the sampling properties of the test results and allow for statistical inference. Our approach is illustrated using real-life US stock market data.
|Keywords||efficiency, linear programming, portfolio evaluation, portfolio selection, stochastic dominance|
|Publisher||Erasmus Research Institute of Management (ERIM)|
Post, G.T.. (2002). Testing for Third-Order Stochastic Dominance with Diversification Possibilities (No. ERS-2002-02-F&A). Erasmus Research Institute of Management (ERIM). Retrieved from http://hdl.handle.net/1765/164