 Stochastic dominance analysis of Asian hedge fundsWing-Keung Wong, Kok Fai Phoon and Hooi Hooi Lean () Pacific-Basin Finance Journal, 2008, vol. 16, issue 3, 204-223 Abstract: We employ the stochastic dominance approach that utilizes the entire return distribution to rank the performance of Asian hedge funds as traditional mean-variance and CAPM approaches could be inappropriate given the nature of non-normal returns. We find both first-order and higher-order stochastic dominance relationships amongst the funds and conclude that investors would be better off by investing in the first-order dominant funds to maximize their expected wealth. By investing in higher-order dominant funds, risk-averse investors can maximize their expected utilities but not their wealth. In addition, we find the common characteristic for most pairs of funds is that one fund is preferred to another in the negative domain whereas the preference reverses in the positive domain. We conclude that the stochastic dominance approach is more appropriate compared with traditional approaches as a filter in hedge fund selection. Compared with traditional approaches, the SD approach, not only is assumption free, but also provides greater insights to the performance and risk inherent in a hedge fund's track record. Date: 2008 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:16:y:2008:i:3:p:204-223 Access Statistics for this article Pacific-Basin Finance Journal is currently edited by K. Chan and S. Ghon Rhee More articles in Pacific-Basin Finance Journal from Elsevier |
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