RT Generic
T1 Testing downside risk efficiency under market distress
A1 Gonzalo, Jesús
A1 Olmo, José
A2 Universidad Carlos III de Madrid. Departamento de Economía, 
AB In moments of distress downside risk measures like Lower Partial Moments (LPM) are moreappropriate than the standard variance to characterize risk. The goal of this paper is to studyhow to compare portfolios in these situations. In order to do that we show the close connectionbetween mean-risk efficiency sets and stochastic dominance under distress episodes of themarket, and use the latter property to propose a hypothesis test to discriminate betweenportfolios across risk aversion levels. Our novel family of test statistics for testing stochasticdominance 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 ofregression models. These results are illustrated in the empirical application for data from USstocks. We show that mean-variance strategies are stochastically dominated by mean-riskefficient sets in episodes of financial distress.
SN 2340-5031
YR 2008
FD 2008-09
LK https://hdl.handle.net/10016/2951
UL https://hdl.handle.net/10016/2951
LA eng
DS e-Archivo
RD 2 may. 2024