Resource title

Consistent Testing for Stochastic Dominance under General Sampling Schemes

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Resource description

We propose a procedure for estimating the critical values of the extended Kolmogorov- Smirnov tests of First and Second Order Stochastic Dominance in the general K-prospect case. We allow for the observations to be serially dependent and, for the first time, we can accommodate general dependence amongst the prospects which are to be ranked. Also, the prospects may be the residuals from certain conditional models, opening the way for conditional ranking. We also propose a test of Prospect Stochastic Dominance. Our method is subsampling; we show that the resulting tests are consistent and powerful against some N /2 local alternatives even when computed with a data-based subsample size. We also propose some heuristic methods for selecting subsample size and demonstrate in simulations that they perform reasonably. We show that our test is asymptotically similar on the entire boundary of the null hypothesis, and is unbiased. In comparison, any method based on resampling or simulating from the least favorable distribution does not have these properties and consequently will have less power against some alternatives.

Resource author

Oliver Linton, Esfandiar Maasoumi, Yoon-Jae Whang

Resource publisher

Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/22246

Resource license

Adapt according to the presented license agreement and reference the original author.