Journal of Financial and Quantitative Analysis Vol. 42 No. 2 2007
Multivariate Tests for Stochastic Dominance Efficiency of a Given Portfolio
Abstract
We develop empirical tests for stochastic dominance efficiency of a given investment portfolio relative to all possible portfolios formed from a given set of assets. Our tests use multivariate statistics, which result in superior statistical power properties compared to existing stochastic dominance efficiency tests and increase the comparability with existing mean-variance efficiency tests. Using our tests, we demonstrate that the mean-variance inefficiency of the CRSP all-share index relative to beta-sorted portfolios can be explained by tail risk not captured by variance.
- DOI
- 10.1017/s0022109000003367
- Volume
- 42
- Issue
- 2
- Pages
- 489-515
- Language
- en
- Sources
- bibtex:phds-export.bib crossref openalex