Testing for Restricted Stochastic Dominance: Some Further Results

Russell Davidson

Review of Economic Analysis, 2009, vol. 1, issue 1, 34-59

Abstract: Extensions are presented to the results of Davidson and Duclos (2007), whereby the null hypothesis of restricted stochastic non dominance can be tested by both asymptotic and bootstrap tests, the latter having considerably better properties as regards both size and power. In this paper, the methodology is extended to tests of higher-order stochastic dom- inance. It is seen that, unlike the first-order case, a numerical nonlinear optimisation prob- lem has to be solved in order to construct the bootstrap DGP. Conditions are provided for a solution to exist for this problem, and efficient numerical algorithms are laid out. The em- pirically important case in which the samples to be compared are correlated is also treated, both for first-order and for higher-order dominance. For all of these extensions, the boot- strap algorithm is presented. Simulation experiments show that the bootstrap tests perform considerably better than asymptotic tests, and yield reliable inference in moderately sized samples.

Keywords: Higher-order stochastic dominance; empirical likelihood; bootstrap test; corre- lated samples (search for similar items in EconPapers)
JEL-codes: C10 C12 C15 I32 (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (19)

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Related works:
Working Paper: Testing for restricted stochastic dominance: some further results (2009)
Working Paper: TESTING FOR RESTRICTED STOCHASTIC DOMINANCES: SOME FURTHER RESULTS (2007)
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