A Minimum Discrepancy Formulation of Stochastic Dominance Analysis and Implications for Asset Pricing PDF Download
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Author: Valerio Potì
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
In this paper, we offer a MD (Minimum Discrepancy) reformulation of the estimation and inference problem that arises in SD analysis, delivering a method that retains the desirable properties of optimal GMM while offering better higher order ones and, most importantly, without requiring the estimation of the weighting matrix, which is typically unstable and, especially when the cross-section of test-asset payoffs is large compared to the sample period length, subject to substantial sampling error. Moreover, when testing for stochastic dominance/efficiency of a given evaluated portfolio, our method makes it straightforward to impose a no short sales restriction on the admissible allocations to the test assets. While important in practice in certain circumstance, this is instead very hard, if not impossible, in a traditional GMM setting. In an empirical application using 51 years of data on portfolios formed sorting stocks on size and size and book-to-market, we find that, under decreasing absolute risk aversion (DARA) as well as more restrictive parametric specifications of the utility function, the market portfolio is stochastically dominated by the size and book to market portfolios while it compares favorably to the size portfolios.
Author: Valerio Potì
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
In this paper, we offer a MD (Minimum Discrepancy) reformulation of the estimation and inference problem that arises in SD analysis, delivering a method that retains the desirable properties of optimal GMM while offering better higher order ones and, most importantly, without requiring the estimation of the weighting matrix, which is typically unstable and, especially when the cross-section of test-asset payoffs is large compared to the sample period length, subject to substantial sampling error. Moreover, when testing for stochastic dominance/efficiency of a given evaluated portfolio, our method makes it straightforward to impose a no short sales restriction on the admissible allocations to the test assets. While important in practice in certain circumstance, this is instead very hard, if not impossible, in a traditional GMM setting. In an empirical application using 51 years of data on portfolios formed sorting stocks on size and size and book-to-market, we find that, under decreasing absolute risk aversion (DARA) as well as more restrictive parametric specifications of the utility function, the market portfolio is stochastically dominated by the size and book to market portfolios while it compares favorably to the size portfolios.
Author: Andrey M. Lizyayev
Publisher: Rozenberg Publishers
ISBN: 9036101875
Category :
Languages : en
Pages : 136
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Book Description
Author: Philippe Johannes Petrus Marie Versijp
Publisher: Rozenberg Publishers
ISBN: 9051709358
Category :
Languages : en
Pages : 128
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Book Description
Author: Thierry Post
Publisher:
ISBN:
Category :
Languages : en
Pages : 26
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Book Description
Author: Songsak Sriboonchita
Publisher: CRC Press
ISBN: 9781420082678
Category : Business & Economics
Languages : en
Pages : 455
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Book Description
Drawing from many sources in the literature, Stochastic Dominance and Applications to Finance, Risk and Economics illustrates how stochastic dominance (SD) can be used as a method for risk assessment in decision making. It provides basic background on SD for various areas of applications. Useful Concepts and Techniques for Economics ApplicationsThe
Author: G. A. Whitmore
Publisher:
ISBN:
Category : Business & Economics
Languages : en
Pages : 424
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Book Description
Theoretical foundations of stochastic dominance; Portfolio applications: empirical studies; Portfolio applications: computational aspects; Applications to financial management and capital markets; Applications in economic theory and analysis.
Author: Thierry Post
Publisher:
ISBN:
Category :
Languages : en
Pages : 29
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Book Description
We develop and implement linear formulations of general N-th order Stochastic Dominance criteria for discrete probability distributions. Our approach is based on a piece-wise polynomial representation of utility and its derivatives and can be implemented by solving a relatively small system of linear inequalities. This approach allows for comparing a given prospect with a discrete set of alternative prospects as well as for comparison with a polyhedral set of linear combinations of prospects. We also derive a linear dual formulation in terms of lower partial moments and co-lower partial moments. An empirical application to historical stock market data suggests that the passive stock market portfolio is highly inefficient relative to actively managed portfolios for all investment horizons and for nearly all investors. The results also illustrate that the mean-variance rule and second-order stochastic dominance rule may not detect market portfolio inefficiency because of non-trivial violations of non-satiation and prudence.
Author: Gerrit Tjeerd Post
Publisher:
ISBN:
Category :
Languages : en
Pages : 35
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Author: Wayne Ferson
Publisher: MIT Press
ISBN: 0262039370
Category : Business & Economics
Languages : en
Pages : 497
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Book Description
An introduction to the theory and methods of empirical asset pricing, integrating classical foundations with recent developments. This book offers a comprehensive advanced introduction to asset pricing, the study of models for the prices and returns of various securities. The focus is empirical, emphasizing how the models relate to the data. The book offers a uniquely integrated treatment, combining classical foundations with more recent developments in the literature and relating some of the material to applications in investment management. It covers the theory of empirical asset pricing, the main empirical methods, and a range of applied topics. The book introduces the theory of empirical asset pricing through three main paradigms: mean variance analysis, stochastic discount factors, and beta pricing models. It describes empirical methods, beginning with the generalized method of moments (GMM) and viewing other methods as special cases of GMM; offers a comprehensive review of fund performance evaluation; and presents selected applied topics, including a substantial chapter on predictability in asset markets that covers predicting the level of returns, volatility and higher moments, and predicting cross-sectional differences in returns. Other chapters cover production-based asset pricing, long-run risk models, the Campbell-Shiller approximation, the debate on covariance versus characteristics, and the relation of volatility to the cross-section of stock returns. An extensive reference section captures the current state of the field. The book is intended for use by graduate students in finance and economics; it can also serve as a reference for professionals.
Author: Peter C. Fishburn
Publisher:
ISBN:
Category : Decision-making
Languages : en
Pages : 480
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Book Description