Stochastic dominance tests

Nikolas Topaloglou and Mike Tsionas

Journal of Economic Dynamics and Control, 2020, vol. 112, issue C

Abstract: We develop stochastic dominance tests of a given prospect compared with multiple choice alternatives. We account for all types of preferences. The tests are formulated in terms of linear as well as MIP models, and developed based on bayesian analysis, which relies on novel Markov Chain Monte Carlo procedures. Empirical results indicate that the market portfolio is Prospect stochastic dominance optimal. This implies that there are S-shaped utility functions that rationalize the market portfolio.

Keywords: Stochastic dominance; Prospect stochastic dominance; Markowitz stochastic dominance; Linear programming; Posterior analysis; Markov Chain Monte Carlo (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:112:y:2020:i:c:s0165188920300191

DOI: 10.1016/j.jedc.2020.103849

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