Moment Conditions for Almost Stochastic Dominance

Guo, Xu and Post, Thierry and Wong, Wing-Keung and Zhu, Lixing (2013): Moment Conditions for Almost Stochastic Dominance.

Abstract

This study establishes necessary conditions for Almost Stochastic Dominance criteria of various orders. These conditions take the form of restrictions on algebraic combinations of moments of the probability distributions in question. The relevant set of conditions depends on the relevant order of ASD but not on the critical value for the admissible violation area. These conditions can help to reduce the information requirement and computational burden in practical applications. A numerical example and an empirical application to historical stock market data illustrate the moment conditions. The first four moment conditions in particular seem appealing for many applications.

• Item Type: MPRA Paper
• Language: English
• Keywords: decision theory; utility theory; stochastic dominance; necessary conditions; moments.
• Subjects: C - Mathematical and Quantitative Methods > C0 - General > C00 - General; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D81 - Criteria for Decision-Making under Risk and Uncertainty; G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice ; Investment Decisions

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