A Stochastic Dominance Approach to Spanning

Thierry Post

ERIM Report Series Research in Management from Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam

Abstract: We develop a Stochastic Dominance methodology to analyze if new assets expand the investment possibilities for rational nonsatiable and risk-averse investors. This methodology avoids the simplifying assumptions underlying the traditional mean-variance approach to spanning. The methodology is applied to analyze the stock market behavior of small firms in the month of January. Our findings suggest that the previously observed January effect is remarkably robust with respect to simplifying assumptions regarding the return distribution.

Keywords: linear programming; portfolio evaluation; portfolio selection; spanning; stochastic dominance (search for similar items in EconPapers)
JEL-codes: C19 G3 M (search for similar items in EconPapers)
Date: 2002-02-05
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Citations: View citations in EconPapers (1)

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