Second order of stochastic dominance efficiency vs mean variance efficiency

Kód výsledku v 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>

Výsledek na webu

<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>

Jazyk výsledku

angličtina

Název v původním jazyce

Second order of stochastic dominance efficiency vs mean variance efficiency

Popis výsledku v původním jazyce

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.

Název v anglickém jazyce

Second order of stochastic dominance efficiency vs mean variance efficiency

Popis výsledku anglicky

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.

Druh

J_imp - Článek v periodiku v databázi Web of Science

CEP obor

—

OECD FORD obor

50200 - Economics and Business

Projekt

<a href="/cs/project/GA20-16764S" target="_blank" >GA20-16764S: Zobecněný přístup ke stochastické dominanci: teorie a finanční aplikace</a><br>

Návaznosti

P - Projekt vyzkumu a vyvoje financovany z verejnych zdroju (s odkazem do CEP)

Rok uplatnění

2021

Kód důvěrnosti údajů

S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů

Název periodika

European Journal of Operational Research

ISSN

0377-2217

e-ISSN

—

Svazek periodika

290

Číslo periodika v rámci svazku

3

Stát vydavatele periodika

US - Spojené státy americké

Počet stran výsledku

14

Strana od-do

1192-1206

Kód UT WoS článku

000605460600026

EID výsledku v databázi Scopus

2-s2.0-85091889872