Almost Stochastic Dominance in Stocks Preselection

Abstract

The stochastic dominance rules are a very popular tool in the support of decision making in various fields of economics and management. However the selection of the best alternative on the basis of stochastic dominance is sometimes impossible due to incomparability of alternatives. Some particular properties of almost second degree stochastic dominance (which stochastic dominance do not posses) allow to compare all elements of the set of random alternatives and to build a ranking of them. The aim of the article is to propose a stocks preselection method based on almost stochastic dominance. Our method allow to determine the set of the best stocks and thereby to reduce the number of stocks as a potential elements of a portfolio. Such reduction is very important nowadays because with every year more and more stocks are quoted on Stock Exchange in Warsaw