Working paper
Open access

Spanning tests for markowitz stochastic dominance

Publication date2018

Using properties of the cdf of a random variable defined as a saddle-type point of a real valued continuous stochastic process, we derive first-order asymptotic properties of tests for stochastic spanning w.r.t. a stochastic dominance relation. First, we define the concept of Markowitz stochastic dominance spanning, and develop an analytical representation of the spanning property. Second, we construct a non-parametric test for spanning via the use of an empirical analogy. The method determines whether introducing new securities or relaxing investment constraints improves the invest- ment opportunity set of investors driven by Markowitz stochastic dominance. In an application to standard data sets of historical stock market returns, we reject mar- ket portfolio Markowitz efficiency as well as two-fund separation. Hence there exists evidence that equity management through base assets can outperform the market, for investors with Markowitz type preferences.

  • Saddle-Type Point
  • Markowitz Stochastic Dominance
  • Spanning Test
  • Linear and Mixed integer programming
  • Reverse S-shaped utility
  • JEL : C12
Citation (ISO format)
ARVANITIS, Stelios, SCAILLET, Olivier, TOPALOGLOU, Nikolas. Spanning tests for markowitz stochastic dominance. 2018
Main files (1)
Working paper
  • PID : unige:102836

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Creation01/30/2018 6:59:00 PM
First validation01/30/2018 6:59:00 PM
Update time03/15/2023 7:57:26 AM
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