Please use this identifier to cite or link to this item: https://doi.org/10.1111/j.1368-423X.2011.00348.x
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dc.titleTest statistics for prospect and Markowitz stochastic dominances with applications
dc.contributor.authorBai, Z.
dc.contributor.authorLi, H.
dc.contributor.authorLiu, H.
dc.contributor.authorWong, W.-K.
dc.date.accessioned2016-06-02T10:30:21Z
dc.date.available2016-06-02T10:30:21Z
dc.date.issued2011-07
dc.identifier.citationBai, Z., Li, H., Liu, H., Wong, W.-K. (2011-07). Test statistics for prospect and Markowitz stochastic dominances with applications. Econometrics Journal 14 (2) : 278-303. ScholarBank@NUS Repository. https://doi.org/10.1111/j.1368-423X.2011.00348.x
dc.identifier.issn13684221
dc.identifier.urihttp://scholarbank.nus.edu.sg/handle/10635/125063
dc.description.abstractLevy and Levy (2002, 2004) extend the stochastic dominance (SD) theory for risk averters and risk seekers by developing the prospect SD (PSD) and Markowitz SD (MSD) theory for investors with S-shaped and reverse S-shaped (RS-shaped) utility functions, respectively. Davidson and Duclos (2000) develop SD tests for risk averters whereas Sriboonchitra et al. (2009) modify their statistics to obtain SD tests for risk seekers. In this paper, we extend their work by developing new statistics for both PSD and MSD of the first three orders. These statistics provide a tool to examine the preferences of investors with S-shaped utility functions proposed by Kahneman and Tversky (1979) in their prospect theory and investors with RS-shaped investors proposed by Markowitz (1952a). We also derive the limiting distributions of the test statistics to be stochastic processes. In addition, we propose a bootstrap method to decide the critical points of the tests and prove the consistency of the bootstrap tests. To illustrate the applicability of our proposed statistics, we apply them to study the preferences of investors with the corresponding S-shaped and RS-shaped utility functionsvis-à-visreturns on iShares andvis-à-visreturns of traditional stocks and Internet stocks before and after the Internet bubble. © 2011 The Author(s). The Econometrics Journal © 2011 Royal Economic Society.
dc.description.urihttp://libproxy1.nus.edu.sg/login?url=http://dx.doi.org/10.1111/j.1368-423X.2011.00348.x
dc.sourceScopus
dc.subjectHypothesis testing
dc.subjectMarkowitz stochastic dominance
dc.subjectProspect stochastic dominance
dc.subjectRisk averse
dc.subjectRisk seeking
dc.subjectRS-shaped utility function
dc.subjectS-shaped utility function
dc.subjectTest statistics
dc.typeArticle
dc.contributor.departmentSTATISTICS & APPLIED PROBABILITY
dc.description.doi10.1111/j.1368-423X.2011.00348.x
dc.description.sourcetitleEconometrics Journal
dc.description.volume14
dc.description.issue2
dc.description.page278-303
dc.identifier.isiut000291399900008
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