Chan, Raymond H. and Clark, Ephraim and Wong, WingKeung (2012): On the Third Order Stochastic Dominance for RiskAverse and RiskSeeking Investors.

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Abstract
This paper studies some properties of stochastic dominance (SD) for riskaverse and riskseeking investors, especially for the third order SD (TSD). We call the former ascending stochastic dominance (ASD) and the latter descending stochastic dominance(DSD). We first discuss the basic property of ASD and DSD linking the ASD and DSD of the first three orders to expectedutility maximization for riskaverse and riskseeking investors. Thereafter, we prove that a hierarchy exists in both ASD and DSD relationships and that the higher orders of ASD and DSD cannot be replaced by the lower orders of ASD and DSD. Furthermore, we study conditions in which third order ASD preferences will be 'the opposite of' or 'the same as' their counterpart third order DSD preferences. In addition, we construct examples to illustrate all the properties developed in this paper. The theory developed in this paper provides investors with tools to identify first, second, and third order ASD and DSD prospects and thus they could make wiser choices on their investment decision.
Item Type:  MPRA Paper 

Original Title:  On the Third Order Stochastic Dominance for RiskAverse and RiskSeeking Investors 
Language:  English 
Keywords:  Third order stochastic dominance, ascending stochastic dominance, descending stochastic dominance, expectedutility maximization, risk averters, risk seekers 
Subjects:  D  Microeconomics > D8  Information, Knowledge, and Uncertainty > D81  Criteria for DecisionMaking under Risk and Uncertainty G  Financial Economics > G1  General Financial Markets > G11  Portfolio Choice; Investment Decisions C  Mathematical and Quantitative Methods > C0  General > C02  Mathematical Methods 
Item ID:  42676 
Depositing User:  WingKeung Wong 
Date Deposited:  18. Nov 2012 13:52 
Last Modified:  13. Feb 2013 08:44 
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URI:  http://mpra.ub.unimuenchen.de/id/eprint/42676 