Testing Conditional Stochastic Dominance at Target Points

Federico A. Bugni, Ivan A. Canay and Deborah Kim

Papers from arXiv.org

Abstract: This paper introduces a test for conditional stochastic dominance between two distributions at prespecified values of a conditioning covariate, referred to as target points. The test uses a one-sided Kolmogorov--Smirnov statistic computed from induced order statistics, the outcomes attached to the conditioning observations closest to the target point, and compares it to a critical value that, given the number of neighbors, requires no resampling, kernel smoothing, or parametric assumptions. The same procedure applies whether the outcomes are continuous, discrete, or mixed, and requires only continuity of the conditional distributions in the conditioning variable. We establish asymptotic validity under two frameworks: one in which the number of neighbors is held fixed, where the induced order statistics converge to independent draws from the conditional distributions at the target point; and one in which it grows with the sample size, where we obtain an explicit rate that accommodates both an estimated target point and a data-dependent choice of the number of neighbors. We connect the test to permutation-based inference, provide a refined critical value for discrete outcomes, propose a rule for selecting the tuning parameters, and illustrate the procedure in two empirical applications whose recorded outcomes exhibit mass points. Monte Carlo simulations confirm its strong finite-sample performance.

Date: 2025-03, Revised 2026-08
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Citations: View citations in EconPapers (2)

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