Moment conditions for Almost Stochastic Dominance

Xu Guo; Thierry Post; Wing Keung Wong; Lixing Zhu

doi:10.1016/j.econlet.2014.04.025

Moment conditions for Almost Stochastic Dominance

Xu Guo, Thierry Post, Wing Keung Wong, Lixing Zhu^*

^*Corresponding author for this work

Department of Mathematics

Research output: Contribution to journal › Journal article › peer-review

22 Citations (Scopus)

Abstract

This study establishes necessary conditions for Almost Stochastic Dominance criteria of various orders. These conditions take the form of restrictions on algebraic combinations of moments of the probability distributions in question. The relevant set of conditions depends on the relevant order of ASD but not on the critical value for the admissible violation area. These conditions can help to reduce the information requirement and computational burden in practical applications. A numerical example and an empirical application to historical stock market data illustrate the moment conditions. The first four moment conditions in particular seem appealing for many applications.

Original language	English
Pages (from-to)	163-167
Number of pages	5
Journal	Economics Letters
Volume	124
Issue number	2
DOIs	https://doi.org/10.1016/j.econlet.2014.04.025
Publication status	Published - Aug 2014

Scopus Subject Areas

Finance
Economics and Econometrics

User-Defined Keywords

Decision theory
Moments
Necessary conditions
Stochastic dominance
Utility theory

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10.1016/j.econlet.2014.04.025

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title = "Moment conditions for Almost Stochastic Dominance",

abstract = "This study establishes necessary conditions for Almost Stochastic Dominance criteria of various orders. These conditions take the form of restrictions on algebraic combinations of moments of the probability distributions in question. The relevant set of conditions depends on the relevant order of ASD but not on the critical value for the admissible violation area. These conditions can help to reduce the information requirement and computational burden in practical applications. A numerical example and an empirical application to historical stock market data illustrate the moment conditions. The first four moment conditions in particular seem appealing for many applications.",

keywords = "Decision theory, Moments, Necessary conditions, Stochastic dominance, Utility theory",

author = "Xu Guo and Thierry Post and Wong, {Wing Keung} and Lixing Zhu",

note = "Funding Information: The authors are grateful to the Editor, Professor Roberto Serrano, and anonymous referee for constructive comments and suggestions that led to the significant improvement of an early manuscript. This research is partially supported by grants from Hong Kong Baptist University (no. FRG2/13-14/048) and Research Grants Council of Hong Kong (no. FRG1/13-14/032). Publisher copyright: Copyright {\textcopyright} 2014 Elsevier B.V. All rights reserved.",

year = "2014",

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doi = "10.1016/j.econlet.2014.04.025",

language = "English",

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T1 - Moment conditions for Almost Stochastic Dominance

AU - Guo, Xu

AU - Post, Thierry

AU - Wong, Wing Keung

AU - Zhu, Lixing

N1 - Funding Information: The authors are grateful to the Editor, Professor Roberto Serrano, and anonymous referee for constructive comments and suggestions that led to the significant improvement of an early manuscript. This research is partially supported by grants from Hong Kong Baptist University (no. FRG2/13-14/048) and Research Grants Council of Hong Kong (no. FRG1/13-14/032). Publisher copyright: Copyright © 2014 Elsevier B.V. All rights reserved.

PY - 2014/8

Y1 - 2014/8

N2 - This study establishes necessary conditions for Almost Stochastic Dominance criteria of various orders. These conditions take the form of restrictions on algebraic combinations of moments of the probability distributions in question. The relevant set of conditions depends on the relevant order of ASD but not on the critical value for the admissible violation area. These conditions can help to reduce the information requirement and computational burden in practical applications. A numerical example and an empirical application to historical stock market data illustrate the moment conditions. The first four moment conditions in particular seem appealing for many applications.

AB - This study establishes necessary conditions for Almost Stochastic Dominance criteria of various orders. These conditions take the form of restrictions on algebraic combinations of moments of the probability distributions in question. The relevant set of conditions depends on the relevant order of ASD but not on the critical value for the admissible violation area. These conditions can help to reduce the information requirement and computational burden in practical applications. A numerical example and an empirical application to historical stock market data illustrate the moment conditions. The first four moment conditions in particular seem appealing for many applications.

KW - Decision theory

KW - Moments

KW - Necessary conditions

KW - Stochastic dominance

KW - Utility theory

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DO - 10.1016/j.econlet.2014.04.025

M3 - Journal article

AN - SCOPUS:84901494075

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VL - 124

SP - 163

EP - 167

JO - Economics Letters

JF - Economics Letters

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ER -

Moment conditions for Almost Stochastic Dominance

Abstract

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