Stochastic Dominance Project

(The following paper can be viewed or downloaded in Acrobat format.)

"Consistent Testing for Stochastic Dominance: A Subsampling Approach" (with E. Maasoumi and Y. Whang) We propose a procedure for estimating the critical values of the extended Kolmogorov-Smirnov tests of Stochastic Dominance of arbitrary order in the general $K$-prospect case. We allow for the observations to be serially dependent and, for the first time, we can accommodate \textit{general} dependence amongst the \textit{prospects} which are to be ranked. Also, the prospects may be the residuals from certain conditional models, opening the way for \textit{conditional} ranking. We also propose a test of Prospect Stochastic Dominance. Our method is based on subsampling and we show that the resulting tests are consistent and powerful against some $N^{-1/2}$ local alternatives. We also propose some heuristic methods for selecting subsample size and demonstrate in simulations that they perform reasonably. We describe an alternative method for obtaining critical values based on recentring the test statistic and using full sample bootstrap methods. We compare the two methods in theory and in practice.
Revised December, 2003



Some Programs in GAUSS

"Program to compute FSD and SSD test for 20 subsamples"

"Program to compute PSD test for 20 subsamples"

"Program to produce graphics"