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Spanning tests for markowitz stochastic dominance

Publication date2018
Abstract

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.

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

Creation30/01/2018 18:59:00
First validation30/01/2018 18:59:00
Update time15/03/2023 07:57:26
Status update15/03/2023 07:57:26
Last indexation31/10/2024 09:47:08
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