Stochastic Dominance Procedures Research Articles

STOCHASTIC DOMINANCE AND BEHAVIOR TOWARDS RISK: THE MARKET FOR ISHARES

Prospect theory suggests that risk seeking can occur when investors face losses and thus an S-shaped utility function can be useful in explaining investor behavior. Using stochastic dominance procedures, Post and Levy (2015) find evidence of reverse S-shaped utility functions. This is consistent with investors exhibiting risk-seeking tendencies in bull markets and risk aversion in bear markets. We use both ascending and descending stochastic dominance procedures to test for risk-averse and risk-seeking behavior. By partitioning iShares' return distributions into negative and positive return regions, we find evidence of all four utility functions: concave, convex, S-shaped and reverse S-shaped.

A multidimensional analysis of poverty in China from 1991 to 2006

Abstract Most studies have reported non negligible improvements for China in terms of poverty during the last three decades. However, this result is potentially hampered by two limitations. First, it may be contingent to the specific choices made regarding the poverty line and the poverty indices used for the analysis. As a consequence, it may collapse if one uses alternative poverty lines or poverty measures. Second, it results from a focus on the sole monetary aspects of poverty. As income does not cover all facets of well-being and since the relationship between these two concepts are quite fuzzy, it may be worth using a broader view of well-being, hence opting for a multidimensional approach of poverty analysis. In the present paper, these two issues are addressed using multidimensional stochastic dominance procedures on the joint distribution of income, education and health in seven Chinese provinces.

Health and income: A robust comparison of Canada and the US

Abstract This paper uses sequential stochastic dominance procedures to compare the joint distribution of health and income across space and time. It is the first application of which we are aware of methods to compare multidimensional distributions of income and health using procedures that are robust to aggregation techniques. The paper’s approach is more general than comparisons of health gradients and does not require the estimation of health equivalent incomes. We illustrate the approach by contrasting Canada and the US using comparable data. Canada dominates the US over the bottom part of the bi-dimensional distribution of health and income, though not generally over the uni-dimensional distributions of health or income. The paper also finds that welfare for both Canadians and Americans has not unambiguously improved during the last decade over the joint distribution of income and health, in spite of the fact that the uni-dimensional distributions of income have clearly improved during that period.

Stochastic Dominance and Behavior towards Risk: The Market for iShares

Prospect theory suggests that risk seeking can occur when investors face losses and thus an S-shaped utility function can be useful in explaining investor behavior. Using stochastic dominance procedures, Post and Levy (2005) find evidence of reverse S-shaped utility functions. This is consistent with investors exhibiting risk-seeking tendencies in bull markets and risk aversion in bear markets. We use both ascending and descending stochastic dominance procedures to test for risk averse and risk seeking behavior. By partitioning iShares’ return distributions into negative and positive return regions, we find evidence of all four utility functions: concave, convex, S-shaped and reverse S-shaped.

Health and Income: A Robust Comparison of Canada and the US

This paper uses sequential stochastic dominance procedures to compare the joint distribution of health and income across space and time. It is the first application of which we are aware of methods to compare multidimensional distributions of income and health using procedures that are robust to aggregation techniques. The paper’s approach is more general than comparisons of health gradients and does not require the estimation of health equivalent incomes. We illustrate the approach by contrasting Canada and the US using comparable data. Canada dominates the US over the lower bi-dimensional welfare distribution of health and income, though not generally in terms of the uni-dimensional distribution of health or income. The paper also finds that welfare for both Canadians and Americans has not unambiguously improved during the last decade over the joint distribution of income and health, in spite of the fact that the uni-dimensional distributions of income have clearly improved during that period.

Stochastic Dominance Analysis of iShares

Country indices as represented by iShares exhibit non-normal return distributions with both skewness and kurtosis. Earlier studies provide procedures for determining the statistical significance of stochastic dominance measures and the Sharpe Ratio. This present study uses these refinements to compare the performance of 18 country market indices. The iShares are indistinguishable when using the Sharpe Ratio as no significant differences are found. In contrast, stochastic dominance procedures identify dominant iShares. Although the results vary over time, stochastic dominance appears to be both more robust and discriminating than the CAPM in the ranking of the iShares.

On the comparative evaluation of agricultural income distributions in the European Union

The paper reports a set of operational rules for ranking income distributions that could be used, given appropriate data, to address a range of policy issues concerning the economic welfare of the agricultural community, the comparability of agricultural and non-agricultural incomes, and the extent and depth of poverty in farming. The rules are based on stochastic dominance procedures and are consistent with social preferences for higher incomes and a more equal distribution of income. Their application is illustrated by means of a comparative analysis of the farm family income situation in the member states of the European Union based on Farm Accountancy Data Network (FADN) data. The inadequacy of FADN data as a basis for inferences about welfare and poverty of farm households is stressed. Keywords:economic welfare, poverty, European Union, agricultural income

International Comparisons of Welfare and Poverty: Dominance Orderings for Ten Countries

Inference-based stochastic dominance procedures are applied to Luxembourg Income Study data to rank ten western countries in terms of standards of living and poverty. First-order dominance comparisons ranks more than 50 percent of all pairwise comparisons and second-order (generalized Lorenz) dominance adds another 25 percent. Truncated dominance analysis is used to make inferences about poverty and up to 98 percent of the truncated distributions are ordered. The results differ substantially from those obtained when only relative incomes and inequality are considered.

The Effect of Manager Risk Attitudes on Range Improvement Decisions

Despite the availability of potentially profitable range improvement alternatives, private land ranch managers in the central U.S. are not readily adopting recommended range improvement practices. One explanation for this behavior is that managers may not be willing to accept the increased risk associated with implementing range improvement programs. The objectives of this study were to estimate the expected value and variability of net returns derived from several range improvement practices and use this information to assess the influence that manager risk attitudes have on the selection of range improvement practices. A stochastic range simulation model was used to provide estimates of the expected value and variability of income following the application of several range improvement practices in the Cross Timbers Region. Generalized stochastic dominance procedures were then used to rank these practices for managers characterized by alternative risk attitudes. Results of the analysis illustrate that optimal range improvement practices may be sensitive to manager risk attitudes. Managers willing to accept the possibility of low or negative incomes may prefer more intensive range improvement practices such as application of tebuthiuron for brush management followed by annual prescribed burning. In contrast, risk averse decision makers are inclined to implement lower cost range improvement practices or fail to utilize any range improvement practice.

The Effect of Spatial Variability of Irrigation Applications on Risk-Efficient Strategies

AbstractThe effect of irrigation system uniformity on the selection of risk-efficient irrigation strategies is evaluated using crop simulation and stochastic dominance procedures. Alternative strategies are evaluated under assumptions of both uniform and non-uniform application. Results indicate that the variability of net returns resulting from the employment of a specified schedule increases when irrigation uniformity is explicitly represented. Solutions derived using economic efficiency and stochastic dominance criteria indicate that the uniformity with which irrigations are applied contributes to the application of water-intensive irrigation schedules.