Portfolio Efficiency Tests Based On Stochastic Dominance And Cointegration
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A Portfolio Optimality Test Based on the First-Order Stochastic Dominance Criterion
Author | : Thierry Post |
Publisher | : |
Total Pages | : 33 |
Release | : 2016 |
Genre | : |
ISBN | : |
Existing approaches to testing for the efficiency of a given portfolio make strong parametric assumptions about investor preferences and return distributions. Stochastic dominance based procedures promise a useful non-parametric alternative. However, these procedures have been limited to considering binary choices.In this paper we consider a new approach that considers all diversified portfolios, and thereby introduce a new concept of first-order stochastic dominance (FSD) optimality of a given portfolio relative to all possible portfolios. Using our new test, we show that the US stock market portfolio is significantly FSD non-optimal relative to benchmark portfolios formed on market capitalization and book-to-market equity ratios. Without appealing to parametric assumptions about the return distribution, we conclude that no nonsatiable investor would hold the market portfolio in the face of the attractive premia of small caps and value stocks.
Advances in the use of stochastic dominance in asset pricing
Author | : Philippe Johannes Petrus Marie Versijp |
Publisher | : Rozenberg Publishers |
Total Pages | : 128 |
Release | : 2007 |
Genre | : |
ISBN | : 9051709358 |
New Efficiency Theory
Author | : Jati Sengupta |
Publisher | : Springer Science & Business Media |
Total Pages | : 190 |
Release | : 2003-06-24 |
Genre | : Business & Economics |
ISBN | : 3540140131 |
New efficiency theory refers to the various parametric and semi-parametric methods of estimating production and cost frontiers, which include data envelopment analysis (DEA) with its diverse applications in management science and operations research. This monograph develops and generalizes the new efficiency theory by highlighting the interface between economic theory and operations research. Some of the outstanding features of this monograph are: (1) integrating the theory of firm efficiency and industry equilibrium, (2) emphasizing growth efficiency in a dynamic setting, (3) incorporating uncertainty of market demand and prices, and (4) the implications of group efficiency by sharing investments. Applications discuss in some detail the growth and decline of the US computer industry, and the relative performance of mutual fund portfolios.
Advanced Robust and Nonparametric Methods in Efficiency Analysis
Author | : Cinzia Daraio |
Publisher | : Springer Science & Business Media |
Total Pages | : 263 |
Release | : 2007-04-10 |
Genre | : Business & Economics |
ISBN | : 0387352317 |
Providing a systematic and comprehensive treatment of recent developments in efficiency analysis, this book makes available an intuitive yet rigorous presentation of advanced nonparametric and robust methods, with applications for the analysis of economies of scale and scope, trade-offs in production and service activities, and explanations of efficiency differentials.
Comparing Mean Variance Tests with Stochastic Dominance When Assessing International Portfolio Diversification Benefits
Author | : Thomas O. Meyer |
Publisher | : |
Total Pages | : 36 |
Release | : 2007 |
Genre | : |
ISBN | : |
Stochastic dominance has been shown to be theoretically superior to mean variance (MV) analysis because it considers the entire return distribution and is based on minimally-restrictive assumptions regarding investor motives. This study uses stochastic dominance to examine whether adding internationally-based assets to a wholly-domestic portfolio generates diversification benefits. In contrast to previous MV findings, a New Zealand-only portfolio stochastically dominates four internationally-diversified portfolios across all periods considered. Similarly, the least internationally-diversified portfolio persistently dominates more diversified counterparts. Within-portfolio analysis supports the fundamental precept of finance theory showing that in the Asian Crisis period, the least risky/lowest return weighting schemes dominate those with a greater risk or higher return characteristic.
Efficient Algorithms for Conducting Stochastic Dominance Tests on Large Numbers of Portfolios
Author | : George M. Frankfurter |
Publisher | : |
Total Pages | : 6 |
Release | : 1974 |
Genre | : Algorithms |
ISBN | : |