Title: | Testing for central dominance: Method and application |
Authors: | Chuang, O-Chia;Kuan, Chung-Ming;Tzeng, Larry Y. 曾郁仁 |
Contributors: | 風管系 |
Keywords: | Central dominance;Contact set;Functional inequality;Portfolio selection;Stochastic dominance |
Date: | 2017-02 |
Issue Date: | 2017-08-21 16:51:09 (UTC+8) |
Abstract: | Central dominance (CD) introduced in Gollier (1995, Journal of Economic Theory) is a risk concept that differs from stochastic dominance (SD) in an important way. In particular, CD implies a deterministic comparative static of a change in decision when risk changes, but SD does not have such an implication. In this paper, we propose the first test of central dominance, which amounts to checking a functional inequality. We derive the asymptotic distribution of a lower bound of the proposed test and suggest a bootstrap procedure to compute the critical values. We also conduct simulations to evaluate the performance of this test. Our empirical study finds clear evidence of CD relations between the S&P 500 index return distributions during 2001–2013 and results in unambiguous implications for investment decisions. |
Relation: | Journal of Econometrics,Volume 196, Issue 2, Pages 368-378 |
Data Type: | article |
DOI link: | https://doi.org/10.1016/j.jeconom.2016.07.008 |
Appears in Collections: | [Department of Risk Management and Insurance] Periodical Articles
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