A Monte Carlo Investigation of Some Tests for Stochastic Dominance

Y. K. Tse () and Xibin Zhang ()

No 7/03, Monash Econometrics and Business Statistics Working Papers from Monash University, Department of Econometrics and Business Statistics

Abstract: This paper compares the performance of several tests for stochastic dominance up to order three using Monte Carlo methods. The tests considered are the Davidson and Duclos (2000) test, the Anderson test (1996) and the Kaur, Rao and Singh (1994) test. Only unpaired samples of independent observations are considered, as this is a restriction for both the Anderson and Kaur-Rao-Singh tests. We find that the Davidson-Duclos test appears to be the best. The Kaur-Rao-Singh test is overly conservative and does not compare favorably against the Davidson-Duclos and Anderson tests in terms of power.

Keywords: Burr distribution; Income distribution; Monte Carlo method; Portfolio investment; Stochastic dominance; Union-intersection test (search for similar items in EconPapers)
JEL-codes: C12 D31 G11 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cmp, nep-ecm and nep-rmg
Date: Written 2003-03
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