Testing downside risk efficiency under market distress

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dc.contributor.author Gonzalo, Jesús
dc.contributor.author Olmo, José
dc.contributor.editor Universidad Carlos III de Madrid. Departamento de Economía
dc.date.accessioned 2008-09-18T11:16:58Z
dc.date.available 2008-09-18T11:16:58Z
dc.date.issued 2008-09
dc.identifier.issn 2340-5031
dc.identifier.uri http://hdl.handle.net/10016/2951
dc.description.abstract In moments of distress downside risk measures like Lower Partial Moments (LPM) are more appropriate than the standard variance to characterize risk. The goal of this paper is to study how to compare portfolios in these situations. In order to do that we show the close connection between mean-risk efficiency sets and stochastic dominance under distress episodes of the market, and use the latter property to propose a hypothesis test to discriminate between portfolios across risk aversion levels. Our novel family of test statistics for testing stochastic dominance under distress makes allowance for testing orders of dominance higher than zero, for general forms of dependence between portfolios and can be extended to residuals of regression models. These results are illustrated in the empirical application for data from US stocks. We show that mean-variance strategies are stochastically dominated by mean-risk efficient sets in episodes of financial distress.
dc.format.mimetype application/pdf
dc.language.iso eng
dc.relation.ispartofseries UC3M Working papers. Economics 08-21
dc.rights Atribución-NoComercial-SinDerivadas 3.0 España
dc.rights.uri http://creativecommons.org/licenses/by-nc-nd/3.0/es/
dc.subject.other Comovements
dc.subject.other Downside risk
dc.subject.other Lower partial moments
dc.subject.other Market Distress
dc.subject.other Mean-risk models
dc.subject.other Mean-variance models
dc.subject.other Stochastic dominance
dc.title Testing downside risk efficiency under market distress
dc.type workingPaper
dc.type workingPaper
dc.subject.jel C1
dc.subject.jel C2
dc.subject.eciencia Economía
dc.rights.accessRights openAccess
dc.identifier.repec we084321
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