Spanning tests for markowitz stochastic dominance

Stelios Arvanitis, Olivier Scaillet and Nikolas Topaloglou

No unige:102836, Working Papers from University of Geneva, Geneva School of Economics and Management

Abstract: Using properties of the cdf of a random variable defined as a saddle-type point of a real valued continuous stochastic process, we derive first-order asymptotic properties of tests for stochastic spanning w.r.t. a stochastic dominance relation. First, we define the concept of Markowitz stochastic dominance spanning, and develop an analytical representation of the spanning property. Second, we construct a non-parametric test for spanning via the use of an empirical analogy. The method determines whether introducing new securities or relaxing investment constraints improves the invest- ment opportunity set of investors driven by Markowitz stochastic dominance. In an application to standard data sets of historical stock market returns, we reject mar- ket portfolio Markowitz efficiency as well as two-fund separation. Hence there exists evidence that equity management through base assets can outperform the market, for investors with Markowitz type preferences.

Keywords: Saddle-Type Point; Markowitz Stochastic Dominance; Spanning Test; Linear and Mixed integer programming; Reverse S-shaped utility (search for similar items in EconPapers)
JEL-codes: C12 C14 C44 C58 D81 G11 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://luniarchidoc4.unige.ch/archive-ouverte/unige:102836/ATTACHMENT01

Related works:
Journal Article: Spanning tests for Markowitz stochastic dominance (2020)
Working Paper: Spanning Tests for Markowitz Stochastic Dominance (2018)
Working Paper: Spanning Tests for Markowitz Stochastic Dominance (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gnv:wpgsem:unige:102836

Access Statistics for this paper

More papers in Working Papers from University of Geneva, Geneva School of Economics and Management Contact information at EDIRC.
Bibliographic data for series maintained by Jean-Blaise Claivaz ().