Kappa ratios and (higher-order) stochastic dominance

Cuizhen NIU, Wing Keung WONG, Qunfang XU

Research output: Journal PublicationsJournal Article (refereed)Researchpeer-review

8 Citations (Scopus)

Abstract

This paper first shows the sufficient relationship between the $$(n+1)$$ (n + 1) -order SD and the n-order Kappa ratio. In fact, we clarify the restrictions on necessary beating of the target for the higher-order SD consistency of the Kappa ratios. Thereafter, we show that, in general, the necessary relationship between SD/RSD and the Kappa ratio cannot be established. We find that when the variables being compared belong to the same location-scale family or the same linear combination of location-scale families, we can get the necessary relationship between the (n+1)$$ (n + 1) -order SD with the n-order Kappa ratio after imposing some conditions on the means. Our findings enable academics and practitioners to draw better decision in their analysis.
Original languageEnglish
Pages (from-to)245-253
Number of pages9
JournalRisk Management
Volume19
Issue number3
DOIs
Publication statusPublished - 1 Aug 2017
Externally publishedYes

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Stochastic dominance

Keywords

  • Kappa ratio
  • Mean-risk analysis
  • Omega ratio
  • Risk aversion
  • Sortino ratio
  • Stochastic dominance

Cite this

NIU, Cuizhen ; WONG, Wing Keung ; XU, Qunfang. / Kappa ratios and (higher-order) stochastic dominance. In: Risk Management. 2017 ; Vol. 19, No. 3. pp. 245-253.
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Kappa ratios and (higher-order) stochastic dominance. / NIU, Cuizhen; WONG, Wing Keung; XU, Qunfang.

In: Risk Management, Vol. 19, No. 3, 01.08.2017, p. 245-253.

Research output: Journal PublicationsJournal Article (refereed)Researchpeer-review

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AU - WONG, Wing Keung

AU - XU, Qunfang

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N2 - This paper first shows the sufficient relationship between the $$(n+1)$$ (n + 1) -order SD and the n-order Kappa ratio. In fact, we clarify the restrictions on necessary beating of the target for the higher-order SD consistency of the Kappa ratios. Thereafter, we show that, in general, the necessary relationship between SD/RSD and the Kappa ratio cannot be established. We find that when the variables being compared belong to the same location-scale family or the same linear combination of location-scale families, we can get the necessary relationship between the (n+1)$$ (n + 1) -order SD with the n-order Kappa ratio after imposing some conditions on the means. Our findings enable academics and practitioners to draw better decision in their analysis.

AB - This paper first shows the sufficient relationship between the $$(n+1)$$ (n + 1) -order SD and the n-order Kappa ratio. In fact, we clarify the restrictions on necessary beating of the target for the higher-order SD consistency of the Kappa ratios. Thereafter, we show that, in general, the necessary relationship between SD/RSD and the Kappa ratio cannot be established. We find that when the variables being compared belong to the same location-scale family or the same linear combination of location-scale families, we can get the necessary relationship between the (n+1)$$ (n + 1) -order SD with the n-order Kappa ratio after imposing some conditions on the means. Our findings enable academics and practitioners to draw better decision in their analysis.

KW - Kappa ratio

KW - Mean-risk analysis

KW - Omega ratio

KW - Risk aversion

KW - Sortino ratio

KW - Stochastic dominance

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