Aggregate investor preferences and beliefs: A comment

Thierry Post and Miloš Kopa

Journal of Empirical Finance, 2013, vol. 23, issue C, 187-190

Abstract: A recent study in this journal presents encouraging results of a daunting simulation analysis of the statistical properties of a centered bootstrap approach to stochastic dominance efficiency analysis. However, by relying on the first-order optimality condition in a situation where multiple optima may occur, the empirical analysis draws the questionable conclusion that some of the toughest data sets in empirical asset pricing can be rationalized by the representative investor maximizing an S-shaped utility function, consistent with the so-called Prospect Stochastic Dominance criterion. Further research could be directed to developing global optimization algorithms and consistent re-sampling methods for statistical inference for general risky choice problems.

Keywords: Stochastic dominance; Utility theory; Risk aversion; Linear programming; Market portfolio efficiency; Asset pricing (search for similar items in EconPapers)
JEL-codes: C22 C32 D81 G11 G12 (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:23:y:2013:i:c:p:187-190

DOI: 10.1016/j.jempfin.2013.06.003

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