|Title:||Testing for central dominance: Method and application||Authors:||Chuang O.-C.
|Keywords:||Central dominance;Contact set;Functional inequality;Portfolio selection;Stochastic dominance||Issue Date:||2017||Journal Volume:||196||Journal Issue:||2||Start page/Pages:||368-378||Source:||Journal of Econometrics||Abstract:||
Central dominance (CD) introduced in Gollier (1995, Journal of Economic Theory) is a risk concept that differs from stochastic dominance (SD) in an important way. In particular, CD implies a deterministic comparative static of a change in decision when risk changes, but SD does not have such an implication. In this paper, we propose the first test of central dominance, which amounts to checking a functional inequality. We derive the asymptotic distribution of a lower bound of the proposed test and suggest a bootstrap procedure to compute the critical values. We also conduct simulations to evaluate the performance of this test. Our empirical study finds clear evidence of CD relations between the S&P 500 index return distributions during 2001¡V2013 and results in unambiguous implications for investment decisions. ? 2016 Elsevier B.V.
|Appears in Collections:||財務金融學系|
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