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Spanning analysis of stock market anomalies under prospect stochastic dominance

Arvanitis, Stelios
Topaloglou, Nikolas
Year 2020
Description 31
Abstract We develop and implement methods for determining whether introducing new securities or relaxing investment constraints improves the investment opportunity set for prospect investors. We formulate a new testing procedure for prospect spanning for two nested portfolio sets based on subsampling and Linear Programming. In an application, we use the prospect spanning framework to evaluate whether well-known anomalies are spanned by standard factors. We find that of the strategies considered, many expand the opportunity set of the prospect type investors, thus have real economic value for them. In-sample and out-of-sample results prove remarkably consistent in identifying genuine anomalies for prospect investors.
Keywords Nonparametric testProspect stochastic dominance efficiencyProspect spanningMarket anomalyLinear Programming
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Research group Geneva Finance Research Institute (GFRI)
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ARVANITIS, Stelios, SCAILLET, Olivier, TOPALOGLOU, Nikolas. Spanning analysis of stock market anomalies under prospect stochastic dominance. 2020 https://archive-ouverte.unige.ch/unige:134101

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Deposited on : 2020-04-06

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