Gains from diversification on convex combinations: A majorization and stochastic dominance approach
Martin Egozcue () and
Wing-Keung Wong
European Journal of Operational Research, 2010, vol. 200, issue 3, 893-900
Abstract:
By incorporating both majorization theory and stochastic dominance theory, this paper presents a general theory and a unifying framework for determining the diversification preferences of risk-averse investors and conditions under which they would unanimously judge a particular asset to be superior. In particular, we develop a theory for comparing the preferences of different convex combinations of assets that characterize a portfolio to give higher expected utility by second-order stochastic dominance. Our findings also provide an additional methodology for determining the second-order stochastic dominance efficient set.
Keywords: Majorization; Stochastic; dominance; Portfolio; selection; Expected; utility; Diversification (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (62)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:200:y:2010:i:3:p:893-900
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