A new stochastic dominance criterion for dependent random variables with applications

Félix Belzunce and Carolina Martínez-Riquelme

Insurance: Mathematics and Economics, 2023, vol. 108, issue C, 165-176

Abstract: In this paper we develop a new tool for the comparison of paired data based on a new criterion of stochastic dominance that takes into account the dependence structure of the random variables under comparison. This new procedure provides a more detailed comparison of dependent random variables and overcomes some difficulties of standard techniques like Student's t and Wilcoxon-Mann-Whitney tests for non normal data. This tool provides an alternative to the usual stochastic dominance criterion which only considers the marginal distributions in the comparison. We show how this new tool can be fruitfully used for the comparison of paired asset returns.

Keywords: Stochastic dominance; Dependent random variables; Nonparametric tests; Portfolio selection; Regret theory (search for similar items in EconPapers)
JEL-codes: C12 G11 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:108:y:2023:i:c:p:165-176

DOI: 10.1016/j.insmatheco.2022.12.002

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