Conditional stochastic dominance tests in dynamic settings Articles uri icon

publication date

  • August 2014

start page

  • 819

end page

  • 838

issue

  • 3

volume

  • 55

International Standard Serial Number (ISSN)

  • 0020-6598

Electronic International Standard Serial Number (EISSN)

  • 1468-2354

abstract

  • This article proposes nonparametric consistent tests of conditional stochastic dominance of arbitrary order in a dynamic setting. The novelty of these tests lies in the nonparametric manner of incorporating the information set. The test allows for general forms of unknown serial and mutual dependence between random variables and has an asymptotic distribution that can be easily approximated by simulation. This method has good finite-sample performance. These tests are applied to determine investment efficiency between U. S. industry portfolios conditional on the dynamics of the market portfolio. The empirical analysis suggests that Telecommunications dominates the other sectoral portfolios under risk aversion.

subjects

  • Economics

keywords

  • nonparametric-tests; kernel estimation; inference; distributions; models; rates