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Stochastic Dominance Statistics for Risk Averters and Risk Seekers: An Analysis of Stock Preferences for USA and China

Bai, Zhidong and Li, Hua and McAleer, Michael and Wong, Wing-Keung (2012) Stochastic Dominance Statistics for Risk Averters and Risk Seekers: An Analysis of Stock Preferences for USA and China. [ Documentos de Trabajo del Instituto Complutense de Análisis Económico (ICAE); nº 13, 2012, ] (Unpublished)

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Abstract

We derive the limiting process of the stochastic dominance statistics for risk averters as well as for risk seekers when the underlying processes might be dependent or independent. We take account of the dependency of the partitions and propose a bootstrap method to decide the critical point. In addition, we illustrate the applicability
of the stochastic dominance statistics for both risk averters and risk seekers to analyze the dominance relationship between the Chinese and US stock markets in the entire period as well as the sub-periods before and after the ¯nancial crises, including the internet
bubble and the recent sub-prime crisis. The ¯ndings could be used to draw inferences on the preferences of risk averters and risk seekers in investing in the Chinese and US stock markets. The results also enable us to examine whether there is any arbitrage opportunity in these markets and whether these markets are eficient and investors are rational.


Item Type:Working Paper or Technical Report
Additional Information:

JEL Classi¯cation: C12, G1, G12, G15.

Acknowledgments:
This research is partially supported by Northeast Normal University, National University of Singapore, Research Grants Council of Hong Kong, and Hong Kong Baptist University.
The third author wishes to acknowledge the ¯nancial support of the Australian Research Council, National Science Council, Taiwan, and the Japan Society for the Promotion of Science. The fourth author would like to thank Professors Robert B. Miller and Howard E. Thompson for their continuous guidance and encouragement.

Uncontrolled Keywords:Stochastic dominance, Risk aversion, Risk seeking, Test statistic, Hypothesis testing.
Subjects:Social sciences > Economics > Econometrics
Social sciences > Economics > Commerce
Series Name:Documentos de Trabajo del Instituto Complutense de Análisis Económico (ICAE)
Volume:2012
Number:13
ID Code:15556
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Deposited On:08 Jun 2012 11:38
Last Modified:06 Feb 2014 10:27

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