Higher-Order Risk Measure and (Higher-Order) Stochastic Dominance

Cuizhen Niu, Wing-Keung Wong and Qunfang Xu

MPRA Paper from University Library of Munich, Germany

Abstract: This paper extends the theory between Kappa ratio and stochastic dominance (SD) and risk-seeking SD (RSD) by establishing several relationships between first- and higher-order risk measures and (higher-order) SD and RSD. We first show the sufficient relationship between the (n+1)-order SD and the n-order Kappa ratio. We then find that, in general, the necessary relationship between SD/RSD and the Kappa ratio cannot be established. Thereafter, we find that when the variables being compared belong to the same location-scale family or the same linear combination of location-scale families, we can get the necessary relationships between the (n+1)-order SD with the n-order Kappa ratio when we impose some conditions on the means. Our findings enable academics and practitioners to draw better decision in their analysis.

Keywords: Stochastic Dominance; Kappa ratio; Omega Ratio; Sortino ratio; mean-risk analysis; risk aversion; risk seeking (search for similar items in EconPapers)
JEL-codes: C02 D81 G10 (search for similar items in EconPapers)
Date: 2017-01-03
New Economics Papers: this item is included in nep-mic, nep-ore, nep-rmg and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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