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Decisions in Economics and Finance

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03-10-2016

A note on portfolio selection and stochastic dominance

Author: Mario Menegatti

Published in: Decisions in Economics and Finance | Issue 2/2016

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Abstract

This note provides new and simpler conditions ensuring that, when one portfolio dominates another via stochastic dominance, a decision maker prefers the first one. The conditions are derived for the case of third-order stochastic dominance and for the general case of Nth-order stochastic dominance.

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Conversely, the assumption is satisfied by all utility functions which are strictly concave, as is often assumed in economic models.

It is worth noting that TSD is related to portfolios skewness. For a presentation of this relationship see, for instance, Levy (2006).

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Menegatti, M.: New results on high-order risk changes. Eur. J. Oper. Res. 243, 678–681 (2015)CrossRef

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Title: A note on portfolio selection and stochastic dominance
Author: Mario Menegatti
Publication date: 03-10-2016
Publisher: Springer Milan
Published in: Decisions in Economics and Finance / Issue 2/2016
Print ISSN: 1593-8883
Electronic ISSN: 1129-6569
DOI: https://doi.org/10.1007/s10203-016-0179-z

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Isometric operators on Hilbert spaces and Wold decomposition of stationary time series