CONDITIONAL STOCHASTIC DOMINANCE TESTS IN DYNAMIC SETTINGS

Jesus Gonzalo and Jose Olmo

International Economic Review, 2014, vol. 55, issue 3, 819-838

Abstract: This article proposes nonparametric consistent tests of conditional stochastic dominance of arbitrary order in a dynamic setting. The novelty of these tests lies in the nonparametric manner of incorporating the information set. The test allows for general forms of unknown serial and mutual dependence between random variables and has an asymptotic distribution that can be easily approximated by simulation. This method has good finite‐sample performance. These tests are applied to determine investment efficiency between U.S. industry portfolios conditional on the dynamics of the market portfolio. The empirical analysis suggests that Telecommunications dominates the other sectoral portfolios under risk aversion.

Date: 2014
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https://doi.org/10.1111/iere.12072

Related works:
Working Paper: Conditional stochastic dominance tests in dynamic settings (2013)
Working Paper: Conditional stochastic dominance tests in dynamic settings (2010)
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