Application of Stochastic Dominance in Stock Preselection

Result code in IS VaVaI
<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F61989100%3A27510%2F17%3A10236535" target="_blank" >RIV/61989100:27510/17:10236535 - isvavai.cz</a>
Result on the web
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DOI - Digital Object Identifier
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Result language
angličtina
Original language name
Application of Stochastic Dominance in Stock Preselection
Original language description
In the paper, we propose to apply stochastic dominance approach as a tool for stock preselection. In the empirical part, we utilize the stock market data, more concretely two datasets consisting of components from two indices: Dow Jones Industrial Average and Standard & Poor’s 500. We compare the out-of-sample performance of the stochastic dominance preselection approach to the performance of rather naive strategy to invest equal fraction of available funds into each stock (1/n strategy). We found out that by applying the first order stochastic dominance we obtain similar results as in the case of 1/n strategy – there is neither significant reduction of the number of preselected stocks nor the difference in return, maximum drawdown or Sharpe ratio. For higher order stochastic dominances there is a significant reduction of preselected stocks quantities and the reduction is greater for larger dataset. However, except DJIA dataset in the case of daily portfolio rebalancing, there is no significant improvement of the performance compared to 1/n strategy – lower drawdowns are compensated by lower returns.
Czech name
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Czech description
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Project
<a href="/en/project/GA15-23699S" target="_blank" >GA15-23699S: Risk Probability Functionals and Ordering Theory Applied to International Financial Markets and Portfolio Selection Problems</a><br>
Continuities
P - Projekt vyzkumu a vyvoje financovany z verejnych zdroju (s odkazem do CEP)

Publication year
2017
Confidentiality
S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů

Article name in the collection
Liberec Economic Forum 2017: proceedings of the 13th international conference : 11th-13th September 2017, Liberec, Czech Republic, EU
ISBN
978-80-7494-349-2
ISSN
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e-ISSN
neuvedeno
Number of pages
7
Pages from-to
340-346
Publisher name
Technical University of Liberec
Place of publication
Liberec
Event location
Liberec
Event date
Sep 11, 2017
Type of event by nationality
EUR - Evropská akce
UT code for WoS article
000426486500038

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