Jackwerth, Jens Carsten and Hodder, James E. and Kolokolova, Olga (2015) Improved Portfolio Choice Using Second Order Stochastic Dominance. Review of Finance, 19 (4). pp. 1623-1647. ISSN 1572-3097
Full text not available from this repository.Abstract
Constructing portfolios based on second-order stochastic dominance (SSD) is theoretically attractive since all risk-averse investors would prefer a dominating portfolio. However, choosing among SSD efficient portfolios is a challenge without an obvious ranking metric. We explore particular choices based on Kuosmanen (2004) plus Kopa and Post (2011), comparing their performance to other SSD-related strategies and to standard portfolio choice approaches. These SSD-related choices outperform portfolios chosen based on their Sharpe ratio, information ratio, or using equal weights. Portfolios based on minimum variance that also match the benchmark’s mean return perform on a par with the SSD-related choices.