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Testing for Second-Order Stochastic Dominance of Two Distributions

Published online by Cambridge University Press:  11 February 2009

Amarjot Kaur ,
B.L.S. Prakasa Rao  and
Harshinder Singh
Amarjot Kaur
Affiliation:
Panjab University
B.L.S. Prakasa Rao
Affiliation:
Indian Statistical Institute
Harshinder Singh
Affiliation:
Panjab University
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Abstract

A distribution function F is said to stochastically dominate another distribution function G in the second-order sense if , for all x. Second-order stochastic dominance plays an important role in economics, finance, and accounting. Here a statistical test has been constructed to test , for some x ∈ [a, b], against the hypothesis , for all x ∈ [a, b], where a and b are any two real numbers. The test has been shown to be consistent and has an upper bound α on the asymptotic size. The test is expected to have usefulness for comparison of random prospects for risk averters.

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Type
Articles
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Econometric Theory , Volume 10 , Issue 5 , December 1994 , pp. 849 - 866
Copyright
Copyright © Cambridge University Press 1994

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