STOCHASTIC DOMINANCE AS A RISK ANALYSIS CRITERION

This paper discusses the Stochastic Dominance (SD) approach to the evaluation of risky assets. Given a set of portfolios, the familiar EV procedure chooses a set of EV-efficient portfolios while the SD procedures choose SD-efficient sets that usually are quite similar to (but not identical with) the EV-efficient set. The SD approach can be employed as a refinement of the EV model or as an alternative method of evaluating portfolios. The SD view has certain conceptual advantages in the screening of a set of portfolios, but the EV model has the important advantage of an optimizing algorithm that builds efficient portfolios. Also, the SD approach requires more data than the EV approach.

[1]  J. Quirk,et al.  Admissibility and Measurable Utility Functions , 1962 .

[2]  William J. Baumol,et al.  An Expected Gain-Confidence Limit Criterion for Portfolio Selection , 1963 .

[3]  W. Sharpe.  A Simplified Model for Portfolio Analysis , 1963 .

[4]  W. Sharpe.  CAPITAL ASSET PRICES: A THEORY OF MARKET EQUILIBRIUM UNDER CONDITIONS OF RISK* , 1964 .

[5]  J. Lintner.  SECURITY PRICES, RISK, AND MAXIMAL GAINS FROM DIVERSIFICATION , 1965 .

[6]  William Breen.  SPECIFIC VERSUS GENERAL MODELS OF PORTFOLIO SELECTION , 1968 .

[7]  H. Levy,et al.  Efficiency analysis of choices involving risk , 1969 .

[8]  Haim Levy,et al.  Relative Effectiveness of Efficiency Criteria for Portfolio Selection , 1970, Journal of Financial and Quantitative Analysis.

[9]  Haim Levy,et al.  ALTERNATIVE EFFICIENCY CRITERIA: AN EMPIRICAL ANALYSIS , 1970 .

[10]  Fred D. Arditti.  Another Look at Mutual Fund Performance , 1971, Journal of Financial and Quantitative Analysis.

[11]  R Burr Porter,et al.  Stochastic Dominance vs. Mean-Variance Portfolio Analysis: An Empirical Evaluation , 1972 .

[12]  James R. Wart,et al.  Efficient Algorithms for Conducting Stochastic Dominance Tests on Large Numbers of Portfolios: Reply , 1975, Journal of Financial and Quantitative Analysis.

[13]  R. Burr Porter,et al.  An Empirical Comparison of Stochastic Dominance and Mean-Variance Portfolio Choice Criteria , 1973, Journal of Financial and Quantitative Analysis.

[14]  O. Maurice Joy,et al.  OF FINANCIAL AND QUANTITATIVE ANALYSIS January 1974 STOCHASTIC DOMINANCE AND MUTUAL FUND PERFORMANCE , 2009 .