stochdom2: Compute vectors measuring stochastic dominance of four...

In generalCorr: Generalized Correlations, Causal Paths and Portfolio Selection

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)

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

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

Note

The input to this function is the output of the function wtdpapb.

Author(s)

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

 ## Not run: 
 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) 
## End(Not run)

generalCorr documentation built on Oct. 10, 2023, 1:06 a.m.