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
ISI Impact: 0
Item ID: 8563
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Depositing User: Devika Mohan
Date Deposited: 06 Mar 2012 07:15
Last Modified: 13 Oct 2016 14:24

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