We analyze if the value-weighted stock market portfolio is second-order stochastic dominance (SSD) efficient relative to benchmark portfolios formed on market capitalization, book-to-market equity ratio and industry classification. During the period from the mid-1970s to the late 1980s, the...

We propose linear programming tests for spanning and intersection based on stochastic dominance rather than mean-variance analysis. An empirical application investigates the diversification benefits to US investors from emerging equity markets.

We derive empirical tests for stochastic dominance that allow for diversification between choice alternatives. The tests can be computed using straightforward linear programming. Bootstrapping techniques and asymptotic distribution theory can approximate the sampling properties of the test...

We propose a new test of the stochastic dominance efficiency of a given portfolio over a class of portfolios. We establish its null and alternative asymptotic properties, and define a method for consistently estimating critical values. We present some numerical evidence that our tests work well...

FIRST-ORDER STOCHASTIC DOMINANCE (FSD) is one of the fundamental concepts of decision making under uncertainty, relying only on the assumption of nonsatiation, or decision makers preferring more to less. There exist well-known, simple algorithms for establishing FSD relationships between a pair...

We develop an empirical test for Second-order Stochastic Dominance (SSD) efficiency of a given investment portfolio relative to all possible portfolios formed from a set of assets. Contrary to the Linear Programming test of Post, Thierry, 2003, Empirical tests for stochastic dominance...

This paper discusses statistical inference on the second-order stochastic dominance (SSD) efficiency of a given portfolio relative to all portfolios formed from a set of assets. We derive the asymptotic sampling distribution of the Post test statistic for SSD efficiency. Unfortunately, a test...

We investigate whether risk seeking or non-concave utility functions can help to explain the cross-sectional pattern of stock returns. For this purpose, we analyze the stochastic dominance efficiency classification of the value-weighted market portfolio relative to benchmark portfolios based on...

We develop a Stochastic Dominance methodology to analyze if new assets expand the investment possibilities for rational nonsatiable and risk-averse investors. This methodology avoids the simplifying assumptions underlying the traditional mean-variance approach to spanning. The methodology is...

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...