A performance index consistent with fractional-order stochastic dominance

Tzu-Ying Chen, Yi-Ting Chen, Rachel J. Huang and Larry Y. Tzeng

Pacific-Basin Finance Journal, 2025, vol. 93, issue C

Abstract: We propose a performance index for ranking risky projects, termed the fractional-order Omega. The proposed index is consistent with the fractional-order stochastic dominance in between the first- and the second-order stochastic dominance, and bridges the traditional Omega and the second-order Omega. To illustrate its empirical applicability, we utilize the index to develop a market timing strategy. Empirical results show that the market timing strategy, which aims to maximize the fractional-order Omega ex ante, generally performs well ex post.

Keywords: Fractional-order stochastic dominance; Market timing; Omega; Performance index (search for similar items in EconPapers)
JEL-codes: D81 G11 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:93:y:2025:i:c:s0927538x25002288

DOI: 10.1016/j.pacfin.2025.102891

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