Second order of stochastic dominance efficiency vs mean variance efficiency
The result's identifiers
Result code in IS VaVaI
<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F61989100%3A27510%2F21%3A10245942" target="_blank" >RIV/61989100:27510/21:10245942 - isvavai.cz</a>
Result on the web
<a href="https://www.sciencedirect.com/science/article/pii/S0377221720307645?via%3Dihub" target="_blank" >https://www.sciencedirect.com/science/article/pii/S0377221720307645?via%3Dihub</a>
DOI - Digital Object Identifier
<a href="http://dx.doi.org/10.1016/j.ejor.2020.08.051" target="_blank" >10.1016/j.ejor.2020.08.051</a>
Alternative languages
Result language
angličtina
Original language name
Second order of stochastic dominance efficiency vs mean variance efficiency
Original language description
In this paper, we compare two of the main paradigms of portfolio theory: mean variance analysis and expected utility. In particular, we show empirically that mean variance efficient portfolios are typically sub-optimal for non satiable and risk averse investors. We illustrate that the second order stochastic dominance (SSD) efficient set is the solution of a multi-objective optimization problem. We further show that the market portfolio is not necessarily a solution to this optimization problem. We also conduct an empirical analysis, examining the ex ante and ex post performance of SSD and mean variance efficient portfolios, using a bootstrap approach. In an ex ante analysis, we compare empirical moments, the level of diversification and set distances of mean variance and SSD efficient sets. We also show that the global minimum variance (GMV) portfolio and the part of the mean variance efficient frontier (MVEF) composed of highly diversified portfolios is second order stochastically dominated. This result also provides a possible alternative explanation for the diversification puzzle. Conducting an ex post analysis, we construct second order stochastic dominating strategies that outperform the GMV portfolio in terms of wealth and various other performance measures, producing a positive ex post opportunity cost. (C) 2020 Elsevier B.V.
Czech name
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Czech description
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Classification
Type
J<sub>imp</sub> - Article in a specialist periodical, which is included in the Web of Science database
CEP classification
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OECD FORD branch
50200 - Economics and Business
Result continuities
Project
<a href="/en/project/GA20-16764S" target="_blank" >GA20-16764S: A generalized approach to stochastic dominance: theory and financial applications</a><br>
Continuities
P - Projekt vyzkumu a vyvoje financovany z verejnych zdroju (s odkazem do CEP)
Others
Publication year
2021
Confidentiality
S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů
Data specific for result type
Name of the periodical
European Journal of Operational Research
ISSN
0377-2217
e-ISSN
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Volume of the periodical
290
Issue of the periodical within the volume
3
Country of publishing house
US - UNITED STATES
Number of pages
14
Pages from-to
1192-1206
UT code for WoS article
000605460600026
EID of the result in the Scopus database
2-s2.0-85091889872