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On the Third Order Stochastic Dominance for Risk-Averse and Risk-Seeking Investors with Analysis of their Traditional and Internet Stocks

Raymond H. Chan, Ephraim Clark and Wing-Keung Wong

MPRA Paper from University Library of Munich, Germany

Abstract: This paper presents some interesting new properties of third order stochastic dominance (TSD) for risk-averse and risk-seeking investors. We show that the means of the assets being compared should be included in the definition of TSD for both investor types. We also derive the conditions on the variance order of two assets with equal means for both investor types and extend the second order SD (SSD) reversal result of Levy and Levy (2002) to TSD. We apply our results to analyze the investment behaviors on traditional stocks and internet stocks for both risk averters and risk seekers.

Keywords: Third order stochastic dominance; expected-utility maximization; risk aversion; risk seeking; investment behaviors. (search for similar items in EconPapers)
JEL-codes: C00 G11 (search for similar items in EconPapers)
Date: 2016-11-10
New Economics Papers: this item is included in nep-ore, nep-rmg and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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