Finance Seminar（2015-15）

Topic: Effcient Diversification under Generalized Almost Stochastic Dominance

Speaker: Larry Y. Tzeng, National Taiwan University,

Time: Wednesday, 27 May, 10:00-11:15

Location: Room 217, Guanghua Building 2

Abstract: Stochastic dominance (SD) has been identified as an important method for effcient diversification. However, the SD rule is too rigid in that it remains silent on some obvious preferences between two distributions for most investors as pointed out by Leshno and Levy (2002). Thus the purpose of this paper is to derive an effcient frontier according to generalized almost stochastic dominance (GASD) rules proposed by Tsetlin et al. (2015), which can effectively delete the choices which are not preferred by most economically important decision makers. We .rst respectively propose tests for portfolio admissibility and portfolio optimality under generalized almost .rst-degree stochastic dominance. We then propose tests for effcient diversification under generalized almost second-degree stochastic dominance. In each test, we demonstrate how to use computational and tractable linear programming to implement the tests and provide their applications in the stock markets.