Journal of Financial Markets Vol. 20 2014
Exploiting stochastic dominance to generate abnormal stock returns
open access
Abstract
In this paper, we construct zero cost portfolios based on second and third degree stochastic dominance and show that they produce systematic, statistically significant, abnormal returns. These returns are robust with respect to the single index CAPM, the Fama-French three-factor model, the Carhart four-factor model, and the liquidity five-factor model. They are also robust with respect to momentum portfolios, transactions costs, varying time periods, and when broken down by a range of risk factors, such as firm size, leverage, age, return volatility, cash flow volatility, and trading volume.
- DOI
- 10.1016/j.finmar.2014.05.002
- Volume
- 20
- Pages
- 20-38
- Language
- en
- Sources
- crossref openalex