IMPROVING THE MEAN-VARIANCE CRITERION USING STOCHASTIC DOMINANCE

The increased importance of the nonnormal stable Paretian distributions necessitates the development of an investment criterion which does not depend upon the mean and variance. This paper develops a criterion based upon the location and scale parameters of a probability distribution. The rationale of the criterion is established using stochastic dominance orderings of probability distributions. The paper also presents estimators for the location and scale parameters.