Abstract
This paper analyzes the dual formulation of Post’s [Post, T., 2003. Empirical tests for stochastic dominance efficiency. Journal of Finance 58, 1905–1932] test for second-order stochastic dominance (SSD) efficiency of a given investment portfolio relative to all possible portfolios formed from set of assets. In contrast to the earlier work, we (1) provide a direct proof for the dual that does not rely on expected utility theory, (2) adhere to the original definition of SSD, (3) phrase in terms of a general polyhedral portfolio possibilities set and (4) construct a SSD dominating benchmark portfolio from the optimal solution. To illustrate the dual SSD test, we apply the test to analyze the effect of short-selling restrictions on the profitability of momentum investment strategies.
| Original language | English |
|---|---|
| Pages (from-to) | 1564-1573 |
| Number of pages | 10 |
| Journal | European Journal of Operational Research |
| Volume | 185 |
| Issue number | 3 |
| DOIs | |
| Publication status | Published - 2008 |
Research programs
- EUR ESE 33