Spanning analysis of stock market anomalies under Prospect Stochastic Dominance

Stelios Arvanitis, Olivier Scaillet and Nikolas Topaloglou
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Stelios Arvanitis: Athens University of Economics and Business - Department of Economics

No 20-18, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We develop and implement methods for determining whether introducing new securities or relaxing investment constraints improves the investment opportunity set for prospect investors. We formulate a new testing procedure for prospect spanning for two nested portfolio sets based on subsampling and Linear Programming. In an application, we use the prospect spanning framework to evaluate whether well-known anomalies are spanned by standard factors. We find that of the strategies considered, many expand the opportunity set of the prospect type investors, thus have real economic value for them. In-sample and out-of-sample results prove remarkably consistent in identifying genuine anomalies for prospect investors.

Keywords: Nonparametric test; prospect stochastic dominance efficiency; prospect spanning; market anomaly; Linear Programming. (search for similar items in EconPapers)
JEL-codes: C12 C14 C44 C58 D81 G11 G40 (search for similar items in EconPapers)
Pages: 73 pages
Date: 2020-04
New Economics Papers: this item is included in nep-ecm and nep-ore
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https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3569755 (application/pdf)

Related works:
Journal Article: Spanning Analysis of Stock Market Anomalies Under Prospect Stochastic Dominance (2024)
Working Paper: Spanning analysis of stock market anomalies under Prospect Stochastic Dominance (2020)
Working Paper: Spanning analysis of stock market anomalies under prospect stochastic dominance (2020)
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