generalCorr (version 1.2.6)

stochdom2: Compute vectors measuring stochastic dominance of four orders.

Description

Stochastic dominance originated as a sophisticated comparison of two distributions of stock market returns. The dominating distribution is superior in terms of local mean, variance, skewness, and kurtosis, respectively. However, stochastic dominance orders 1 to 4 are really not related to the four moments. Some details are in Vinod (2022, sec. 4.3) and vignettes. Nevertheless, this function uses the output of `wtdpapb.' and Anderson's algorithm. Of course, Anderson's method remains subject to the trapezoidal approximation avoided by exact stochastic dominance methods.

Usage

stochdom2(dj, wpa, wpb)

Value

sd1b

Vector measuring stochastic dominance of order 1, SD1

sd2b

Vector measuring stochastic dominance of order 2, SD2

sd3b

Vector measuring stochastic dominance of order 3, SD3

sd4b

Vector measuring stochastic dominance of order 4, SD4

Arguments

dj

Vector of (unequal) distances of consecutive intervals defined on common support of two probability distributions being compared

wpa

Vector of the first set of (weighted) probabilities

wpb

Vector of the second set of (weighted) probabilities

Author

Prof. H. D. Vinod, Economics Dept., Fordham University, NY

References

Vinod, H. D.', 'Hands-On Intermediate Econometrics Using R' (2008) World Scientific Publishers: Hackensack, NJ. https://www.worldscientific.com/worldscibooks/10.1142/12831

Vinod, H. D. 'Ranking Mutual Funds Using Unconventional Utility Theory and Stochastic Dominance,' Journal of Empirical Finance Vol. 11(3) 2004, pp. 353-377.

See Also

See Also wtdpapb

Examples

 if (FALSE) {
 set.seed(234);x=sample(1:30);y=sample(5:34)
 w1=wtdpapb(x,y) #y should dominate x with mostly positive SDs
 stochdom2(w1$dj, w1$wpa, w1$wpb) }