An empirical analysis of marginal conditional stochastic dominance

Clark, Ephraim A. and Kassimatis, Konstantinos (2012) An empirical analysis of marginal conditional stochastic dominance. Journal of Banking & Finance, 36 (4). pp. 1144-1151. ISSN 0378-4266

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Stochastic dominance is a more general approach to expected utility maximization than the widely accepted mean-variance analysis. However, when applied to portfolios of assets, stochastic dominance rules become too complicated for meaningful empirical analysis, and, thus, its practical relevance has been difficult to establish. This paper develops a framework based on the concept of Marginal Conditional Stochastic Dominance (MCSD), introduced by Shalit and Yitzhaki (1994), to test for the first time the relationship between second order stochastic dominance (SSD) and stock returns. We find evidence that MCSD is a significant determinant of stock returns. Our results are robust with respect to the most popular pricing models.

Item Type:Article
Research Areas:A. > Business School > Accounting and Finance
Citations on ISI Web of Science:0
ID Code:8563
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Deposited On:06 Mar 2012 07:15
Last Modified:10 Mar 2015 12:11

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