Niu, Cuizhen and Wong, WingKeung and Zhu, Lixing (2016): First Stochastic Dominance and Risk Measurement.

PDF
MPRA_paper_75027.pdf Download (75kB)  Preview 
Abstract
Farinelli and Tibiletti (2008) propose a general riskreward performance measurement ratio. Due to its simplicity and generality, the FT ratios have gained much attentions. FT ratios are ratios of average gains to average losses with respect to a target, each raised by some power index. Omega ratio and Upside Potential ratio are both special cases of FT ratios. In this paper, we establish the consistency of FT ratios with respect to firstorder stochastic dominance. It is shown that secondorder stochastic dominance is not consistent to the FT ratios. This point is illustrated by a simple example.
Item Type:  MPRA Paper 

Original Title:  First Stochastic Dominance and Risk Measurement 
English Title:  First Stochastic Dominance and Risk Measurement 
Language:  English 
Keywords:  Stochastic Dominance, Upside Potential Ratio, Farinelli and Tibiletti ratio. 
Subjects:  C  Mathematical and Quantitative Methods > C0  General > C00  General D  Microeconomics > D8  Information, Knowledge, and Uncertainty > D81  Criteria for DecisionMaking under Risk and Uncertainty G  Financial Economics > G1  General Financial Markets > G10  General 
Item ID:  75027 
Depositing User:  WingKeung Wong 
Date Deposited:  12 Nov 2016 07:05 
Last Modified:  05 Oct 2019 17:28 
References:  Bai, Zhidong, Huixia Liu and WingKeung Wong, (2009), Enhancement of the Applicability of Markowitz's Portfolio Optimization by Utilizing Random Matrix Theory, Mathematical Finance, 19(4), 639667. Bai, Zhidong, Kok Fai Phoon, Keyan Wang, WingKeung Wong, 2013, The Performance of Commodity Trading Advisors: A MeanVarianceRatio Test Approach, North American Journal of Economics and Finance, 25, 188201. Bai, Zhidong, Yongchang Hui, WingKeung Wong, Ricardas Zitikis, 2012, Evaluating Prospect Performance: Making a Case for a NonAsymptotic UMPU Test, Journal of Financial Econometrics 10(4), 703732. Udo Broll, Xu Guo, Peter Welzel, Wing Keung Wong, 2015, The banking firm and risk taking in a twomoment decision model, Economic Modelling 50, 275280. Broll, Udo, Jack E. Wahl and WingKeung Wong, (2006), Elasticity of Risk Aversion and International Trade, Economics Letters, 92(1), 126130. ChiaYing Chan, Christian de Peretti, Zhuo Qiao, WingKeung Wong, 2012, Empirical test of the efficiency of the UK covered warrants market: Stochastic dominance and likelihood ratio test approach, Journal of Empirical Finance 19(1), 162174. Ephraim Clark, Zhuo Qiao, WingKeung Wong, 2016, Theories of Risk: Testing Investor Behaviour on the Taiwan Stock and Stock Index Futures Markets, Economic Inquiry 54(2), 907924. Martin Egozcue, WingKeung Wong, (2010), Gains from Diversification on Convex Combinations: A Majorization and Stochastic Dominance Approach, European Journal of Operational Research 200(3), 893900. Farinelli, S., Tibiletti, L. (2008). Sharpe thinking in asset ranking with onesided measures. European Journal of Operational Research 185 (3), 15421547. Fishburn, P.C. (1977). Meanrisk analysis with risk associated with below target returns. American Economic Review 67, 116126. Fong, Wai Mun, Hooi Hooi Lean and Wing Keung Wong, (2008), Stochastic Dominance and Behavior towards Risk: The Market for Internet Stocks, Journal of Economic Behavior and Organization, 68(1), 194208. Fong, W.M., Wong, W.K., Lean, H.H., (2005), International momentum strategies: a stochastic dominance, Journal of Financial Markets, 8, 89109. Guo, X., Wong, W.K. (2016). Multivariate Stochastic Dominance for Risk Averters and Risk Seekers. RAIRO  Operations Research 50(3), 575586. Hanoch G., Levy, H. (1969). The Efficiency Analysis of Choices Involving Risk. Review of Economic studies 36, 335346. Leitner, J. (2005). A short note on secondorder stochastic dominance preserving coherent risk measures. Mathematical Finance 15(4), 649651. Levy, H. (1992). Stochastic dominance and expected utility: Survey and analysis. Management Science 38(4), 555593. Levy, H. (1998). Stochastic dominance: Investment decision making under uncertainty. Kluwer, Boston. Levy, H. (2015). Stochastic Dominance: Investment Decision Making Under Uncertainty. Third Edition, Springer, New York. PuiLam Leung, WingKeung Wong, 2008, On testing the equality of the multiple Sharpe Ratios, with application on the evaluation of iShares, Journal of Risk, 10(3), 116. Li, C.K., Wong, W.K., 1999, Extension of stochastic dominance theory to random variables, RAIRO  Operations Research 33(4), 509524. Ma, C., Wong, W.K. (2010) Stochastic Dominance and Risk Measure: A DecisionTheoretic Foundation for VaR and CVaR, European Journal of Operational Research 207(2), 927935. Markowitz, H.M. (1952). The utility of wealth. Journal of Political Economy 60, 151156. Markowitz, H.M. (1959). Portfolio Selection. Wiley, New York. Markowitz, H.M. (1987). Meanvariance Analysis in Portfolio Choice and Capital Markets. Blackwell, Oxford, UK. Ogryczak, W., Ruszczynski, R. (1999). From stochastic dominance to meanrisk models: semideviations as risk measures. European Journal of Operational Research 116, 3350. Ogryczak, W., Ruszczynski, R. (2001). On consistency of stochastic dominance and meansemideviation models. Mathematical Programming, Series B 89, 217232. Ogryczak, W., Ruszczynski, A. (2002). Dual stochastic dominance and related meanrisk models. SIAM Journal of Optimization 13, 6078. Zhuo Qiao, Ephraim Clark, WingKeung Wong, 2012, Investors' Preference towards Risk: Evidence from the Taiwan Stock and Stock Index Futures Markets, Accounting & Finance 54(1), 251274. Qiao, Z., Wong, W.K. 2015, Which is a better investment choice in the Hong Kong residential property market: a big or small property? Applied Economics 47(16), 16701685. Shadwick, W.F. , Keating, C. (2002). A universal performance measure. J. Perform. Meas. 6 (3), 5984. Sortino, F., Van Der Meer, R., Plantinga, A. (1999). The Dutch triangle. Journal of Portfolio Management 26 (I, Fall), 5058. Sriboonchitta, S., Wong, W.K., Dhompongsa, D., Nguyen, H.T., (2009). Stochastic Dominance and Applications to Finance, Risk and Economics. Chapman and Hall/CRC, Boca Raton, Florida. Tsang, C. K., Wong, W. K., Horowitz, I. (2016). Arbitrage opportunities, efficiency, and the role of risk preferences in the Hong Kong property market. Studies in Economics and Finance 33(4), 735754. Vieito, J.P., Wong, W.K., Zhu, Z.Z. (2015). Could the global financial crisis improve the performance of the G7 stocks markets? Applied Economics 48(12) 10661080. Wong, W.K. 2007. Stochastic dominance and meanvariance measures of profit and loss for business planning and investment. European Journal of Operational Research 182, 829843. Wong, W.K., C.K. Li. 1999. A Note on Convex Stochastic Dominance Theory, Economics Letters 62, 293300. Wong, W.K., C. Ma, 2008. Preferences over Meyer's locationscale family. Economic Theory 37(1), 119146. 
URI:  https://mpra.ub.unimuenchen.de/id/eprint/75027 