Testing for Infinite Order Stochastic Dominance with Applications to Finance, Risk and Income Inequality
Satchell, Stephen E.
Cambridge Working Papers in Economics
Faculty of Economics
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Knight, J., & Satchell, S. E. (2004). Testing for Infinite Order Stochastic Dominance with Applications to Finance, Risk and Income Inequality. https://doi.org/10.17863/CAM.5032
The authors develop a test of infinite degree stochastic dominance based on the use of the empirical moment generating function. Two applications are considered. One uses the income data of Anderson (Econometrica, 1996) and derives results consistent with his. In the other application, the dominance between the US and UK stockmarkets is examined. Using data on the SP 500 and the FTALL-Share, it is shown that the US displays infinite degree stochastic dominance over the UK.
Classification-JEL: C12, C44, D61, Stochastic dominance, Inequality, Proper risk aversion
This record's DOI: https://doi.org/10.17863/CAM.5032
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