A demonstration of the non-necessity of marginal conditional stochastic dominance for portfolio inefficiency

Duo Zhang

The Quarterly Review of Economics and Finance, 2009, vol. 49, issue 2, 417-423

Abstract: This paper demonstrates that a finding of marginal conditional stochastic dominance between two sub-portfolios of a portfolio, while sufficient for showing inefficiency of the portfolio and hence sub-optimality of the portfolio for all risk-averse investors, is not necessary. It is shown by an example that a portfolio can be inefficient even if, for all pairs of sub-portfolios, there is no marginal conditional stochastic dominance. In such a situation, a universally preferred portfolio can be constructed on the margin only by adjusting the shares of more than two sub-portfolios.

Keywords: Stochastic; dominance; Portfolio; inefficiency; Efficiency (search for similar items in EconPapers)
Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:49:y:2009:i:2:p:417-423

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