An Empirical Analysis of Stochastic Dominance and Portfolio Selection in the Stock Market: Evidence from Nigeria

Courage Ose Eburajolo () and Sunday Oseiweh Ogbeide ()
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Courage Ose Eburajolo: Department of Economics, Banking and Finance, Faculty of Social and Management Sciences, Benson Idahosa University, Benin City, Edo State, Nigeria
Sunday Oseiweh Ogbeide: Department of Accounting and Finance, Faculty of Humanities, Social and Management Sciences, Elizade University, Ilara-Mokin, Ondo State, Nigeria

Business & Management Compass, 2021, issue 4, 412-428

Abstract: This study carried out an empirical test of stochastic dominance application on portfolio selection in the Nigerian stock market. December daily stock price of ten (10) listed insurance firms in the period 2014 to 2020 were selected and tested for stochastic dominance occurrence. The findings indicate that the selection of firm stock followed the Markowitz mean-variance and risk preference behavior of investors in the stock market. It also shows that two (2) firm stocks were first order stochastically dominant (FSD), four (4) stocks of firms were second order stochastically dominant while nine (9) stocks were third order stochastically dominant (TSD) in the period after the stock market meltdown in Nigeria. The study recommends that future researchers should empirically investigate portfolio dominance on a sector by sector basis. This will guide potential investors at selecting securities on the basis of mean-variance and utility function.

Keywords: Stochastic Dominance; Portfolio Selection; Risk Aversion; Risk seeking; Pay off (search for similar items in EconPapers)
JEL-codes: D22 D25 G11 (search for similar items in EconPapers)
Date: 2021
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