Testing for Second-Order Stochastic Dominance of Two Distributions

Amarjot Kaur, B.L.S. Prakasa Rao and Harshinder Singh

Econometric Theory, 1994, vol. 10, issue 05, pages 849-866

Abstract: A distribution function F is said to stochastically dominate another distribution function G in the second-order sense if , for all x. Second-order stochastic dominance plays an important role in economics, finance, and accounting. Here a statistical test has been constructed to test , for some x [a, b], against the hypothesis , for all x [a, b], where a and b are any two real numbers. The test has been shown to be consistent and has an upper bound on the asymptotic size. The test is expected to have usefulness for comparison of random prospects for risk averters.

Date: 1994
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