Moment conditions for fractional degree stochastic dominance

Hongxia WANG, Lin ZHOU, Peng-Fei DAI*, Xiong XIONG

*Corresponding author for this work

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

Abstract

The fractional degree stochastic dominance provides a continuum of stochastic dominance rules for ranking uncertain prospects, which encompasses usual integer-degree cases. This work presents its moment conditions. Specifically, the necessary conditions are provided based on the ordering of the moment-generating functions of distributions, which can be related to expected utility with constant absolute risk aversion preferences. We consider numerically many well-known distributions including normal distribution, gamma distribution and so on to show that the moment conditions are simple and computationally feasible in practical applications. We also apply our conditions to detect portfolio efficiency.
Original languageEnglish
Article number103241
JournalFinance Research Letters
Volume49
Early online date10 Aug 2022
DOIs
Publication statusE-pub ahead of print - 10 Aug 2022

Bibliographical note

Funding Information:
The authors would like to thank the editor and anonymous referee for providing valuable suggestions which have led to significant improvement of this article. This work is supported by MOE (Ministry of Education in China) Project of Humanities and Social Sciences under Research Project 19YJC790125 , Philosophy and Social Science Grant of Jiangsu Province, China under Research Project No. 2020SJZDA070 and the National Natural Science Foundation of China with Grant Numbers 71901123 , 72141304 .

Publisher Copyright:
© 2022 Elsevier Inc.

Keywords

  • Stochastic dominance
  • Moment-generating functions
  • Gamma distribution
  • Portfolio

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