Journal of Risk

Risk.net

Test for fractional degree stochastic dominance with applications to stock preferences for China and the United States

Jianli Wang, Xiong Xiong, Lin Zhou and Xu Guo

  • We develop the test statistics for fractional degree stochastic dominance.
  • We introduce a bootstrap method for determining the critical values of the tests.
  • The stock preferences between the Chinese and US markets are explored by using our test statistics.

The concept of stochastic dominance plays a critical role in many economic and financial studies. However, the classical integer-degree stochastic dominance does not allow for local risk attitudes. In a 2020 paper, Huang, Tzeng and Zhao propose the concept of fractional degree stochastic dominance, which encompasses integer-degree stochastic dominance. They derive the integral conditions for fractional degree stochastic dominance. In this paper we develop the test statistics for fractional degree stochastic dominance based on a reformulation of the integral conditions. The test statistics’ asymptotic distributions are obtained and a bootstrap method for determining the critical values of the tests is also introduced. We further explore the stock preferences of the Chinese and US markets to illustrate the applicability of the test statistics for fractional degree stochastic dominance developed here.

Sorry, our subscription options are not loading right now

Please try again later. Get in touch with our customer services team if this issue persists.

New to Risk.net? View our subscription options

If you already have an account, please sign in here.

You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here: