Prospect and Markowitz stochastic dominance

Annals of Finance

Volumn 4, Issue 1, 2008, Pages 105-129

  Wong, W K ^a   Chan, R H ^b  

^a NATIONAL UNIVERSITY OF SINGAPORE   (Singapore)

^b CHINESE UNIVERSITY OF HONG KONG   (Hong Kong)

Author keywords

Markowitz stochastic dominance; Prospect stochastic dominance; Reverse S shaped utility function; Risk averse; Risk seeking; S shaped utility function

Indexed keywords

EID: 36348949227     PISSN: 16142446     EISSN: 16142454     Source Type: Journal    
DOI: 10.1007/s10436-007-0072-4     Document Type: Article

References (53)

1. Anderson G.J. (2004) Toward an empirical analysis of polarization. J Econ 122: 1-26
2. Anscombe F.J., Aumann R.J. (1963) A definition of subjective probability. Ann Math Stat 34(1): 199-205
3. Arrow K.J. (1971) Essays in the theory of risk-bearing. Chicago, Markham
4. Barberis N., Huang M., Santos T. (2001) Prospect theory and asset prices. Q J Econ 116: 1-53
5. Bawa V.S. (1978) Safety-first, stochastic dominance, and optimal portfolio choice. J Fin Quant Anal 13: 255-271
6. Benartzi S., Thaler R. (1995) Myopic loss aversion and the equity premium puzzle. Q J Econ 110(1): 73-92
7. Broll U., Wahl J.E., Wong W.K. (2006) Elasticity of risk aversion and international trade. Econ Lett 91(1): 126-130
8. Falk H., Levy H. (1989) Market reaction to quarterly earnings' announcements: A stochastic dominance based test of market efficiency. Manage Sci 35(4): 425-446
9. Fishburn P.C. (1964) Decision and Value Theory. New York, Wiley
10. Fishburn P.C., Kochenberger G.A. (1979) Two-piece Von Neumann-Morgenstern utility functions. Decis Sci 10: 503-518
11. Fong W.M., Wong W.K., Lean H.H. (2005) International momentum strategies: A stochastic dominance approach. J Fin Markets 8: 89-109
12. Friedman M., Savage L.J. (1948) The utility analysis of choices involving risk. J Polit Econ 56: 279-304
13. Hammond J.S. (1974) Simplifying the choice between uncertain prospects where preference is nonlinear. Manage Sci 20(7): 1047-1072
14. Huang C.-f., Litzenberger R.H. (1988) Foundations for Financial Economics. New York, North-Holland
15. Jarrow R. (1986) The relationship between arbitrage and first order stochastic dominance. J Fin 41: 915-921
16. Kahneman D., Tversky A. (1979) Prospect theory of decisions under risk. Econometrica 47(2): 263-291
17. Kobberling V., Wakker P.P. (2005) An index of loss aversion. J Econ Theory 122: 119-131
18. Kuosmanen T. (2004) Efficient diversification according to stochastic dominance criteria. Manage Sci 50(10): 1390-1406
19. Levy H., Levy M. (2004) Prospect theory and mean-variance analysis. Rev Fin Stud 17(4): 1015-1041
20. Levy M., Levy H. (2002) Prospect theory: Much ado about nothing? Manage Sci 48(10): 1334-1349
21. Levy H., Wiener Z. (1998) Stochastic dominance and prospect dominance with subjective weighting functions. J Risk Uncertain 16(2): 147-163
22. Li C.K., Wong W.K. (1999) A note on stochastic dominance for risk averters and risk takers. RAIRO Recherche Operationnelle 33: 509-524
23. LuceR.D. (2000) Utility of gains and losses: Measurement theoretical and experimental approaches. London, Lawrence Erlbaum Publishers
24. Machina M.J. (1982) Expected utility' analysis without the independence axiom. Econometrica 50(2): 277-324
25. Machina M.J., Schmeidler D. (1992) A more robust definition of subjective probability. Econometrica 60(4): 745-780
26. Markowitz H.M. (1952) The utility of wealth. J Polit Econ 60: 151-156
27. Matsumura E.M., Tsui K.W., Wong W.K. (1990) An extended multinomial-Dirichlet model for error bounds for dollar-unit sampling. Contemp Account Res 6(2-I): 485-500
28. McNamara J.R. (1998) Portfolio selection using stochastic dominance criteria. Decis Sci 29(4): 785-801
29. Meyer J. (1977) Second degree stochastic dominance with respect to a function. Int Econ Rev 18: 476-487
30. Myagkov M., Plott C.R. (1997) Exchange economies and loss exposure: experiments exploring prospect theory and competitive equilibria in market environments. Am Econ Rev 87: 801-828
31. Ng Y.K. (1965) Why do people buy lottery tickets? Choices involving risk and the indivisibility of expenditure. J Polit Econ 73(5): 530-535
32. Pennings J.M.E., Smidts A. (2003) The shape of utility functions and organizational behavior. Manage Sci 49(9): 1251-1263
33. Post T. (2003) Stochastic dominance in case of portfolio diversification: Lin Program Tests. J Fin 58(5): 1905-1931
34. Post T., Levy H. (2005) Does risk seeking drive asset prices? A stochastic dominance analysis of aggregate investor preferences and beliefs. Rev Fin Stud 18(3): 925-953
35. Pratt J.W. (1964) Risk aversion in the small and in the large. Econometrica 32: 122-136
36. Quirk J.P., Saposnik R. (1962) Admissibility and measurable utility functions. Rev Econ Stud 29: 140-146
37. Rabin M. (2000) Risk aversion and expected-utility theory: A calibration theorem. Econometrica 68: 1281-1292
38. Roy A.D. (1952) Safety first and the holding of assets. Econometrica 20(3): 431-449
39. Shefrin H., Statman M. (1993) Behavioral aspect of the design and marketing of financial products. Fin Manage 22(2): 123-134
40. Starmer C. (2000) Developments in non-expected utility theory: The hunt for a descriptive theory of choice under risk. J Econ Lit 38: 332-382
41. Stoyan D. (1983) Comparison methods for queues and other stochastic models. New York, Wiley
42. Swalm R.O. (1966) Utility theory-insights into Risk Taking. Harv Bus Rev 44: 123-136
43. Thaler R.H., Johnson E.J. (1990) Gambling with the house money and trying to break even: The effects of prior outcomes on risky choice. Manage Sci 36: 643-660
44. Tversky A., Kahneman D. (1992) Advances in prospect theory: Cumulative representation of uncertainty. J Risk Uncertain 5: 297-323
45. von Neuman J., Morgenstern O. (1944) Theory of Games and Economic Behavior. Princeton, Princeton University Press
46. Wakker P.P. (2003) The Data of Levy and Levy (2002) Prospect theory: much ado about nothing? Actually support prospect theory. Manage Sci 49(7): 979-981
47. Whitmore G.A. (1970) Third-degree stochastic dominance. Am Econ Rev 60: 457-459
48. Williams C.A.Jr. (1966) Attitudes toward speculative risks as an indicator of attitudes toward pure risks. J Risk Insur 33(4): 577-586
49. Wang M., Fischbeck P.S. (2004) Incorporating framing into prospect theory modeling: A mixture-model approach. J Risk Uncertain 29(2): 181-197
50. Wong W.K., Li C.K. (1999) A note on convex stochastic dominance theory. Econ Lett 62: 293-300
51. Wong W.K., Miller R.B. (1990) Analysis of ARIMA-noise models with repeated time series. J Bus Econ Stat 8(2): 243-250
52. Wu G., Gonzalez R. (1996) Curvature of the probability weighting function. Manage Sci 42: 1676-1690
53. Wu G., Wu J.Z., Abdellaoui M. (2005) Testing prospect Theory using probability tradeoff consistency. J Risk Uncertain 30: 107-131