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Testing for Infinite Order Stochastic Dominance with Applications to Finance, Risk and Income Inequality

By John Knight and Stephen E. Satchell

Abstract

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

Topics: Classification-JEL: C12, C44, D61, Stochastic dominance, Inequality, Proper risk aversion
Publisher: Faculty of Economics
Year: 2004
OAI identifier: oai:www.repository.cam.ac.uk:1810/422
Provided by: Apollo

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Citations

  1. Econometrica American Economic Review Econometrica An Introduction to Probability Theory and Its Applications doi

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