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TESTING FOR RESTRICTED STOCHASTIC DOMINANCES: SOME FURTHER RESULTS

Russell Davidson

Departmental Working Papers from McGill University, Department of Economics

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 higherorder stochastic dominance. It is seen that, unlike the first-order case, a numerical nonlinear optimisation problem 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 empirically 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 bootstrap algorithm is presented. Simulation experiments show that the bootstrap tests perform considerably

JEL-codes: C10 C12 C15 I32 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2007-04
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Related works:
Journal Article: Testing for Restricted Stochastic Dominance: Some Further Results (2009) Downloads
Working Paper: Testing for restricted stochastic dominance: some further results (2009) Downloads
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