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Bootstrap tests of stochastic dominance with asymptotic similarity on the boundary

Authors: Oliver Linton , Kyungchui (Kevin) Song and Yoon-Jae Whang
Date: 10 March 2008
Type: cemmap Working Paper, CWP08/08
DOI: 10.1920/wp.cem.2008.0808

Abstract

We propose a new method of testing stochastic dominance which improves on existing tests based on bootstrap or subsampling. Our test requires estimation of the contact sets between the marginal distributions. Our tests have asymptotic sizes that are exactly equal to the nominal level uniformly over the boundary points of the null hypothesis and are therefore valid over the whole null hypothesis. We also allow the prospects to be indexed by infinite as well as finite dimensional unknown parameters, so that the variables may be residuals from nonparametric and semiparametric models. Our simulation results show that our tests are indeed more powerful than the existing subsampling and recentered bootstrap.

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Now published:
Oliver Linton, Song, Kyungchul and Yoon-Jae Wang February 2010, An improved bootstrap test of stochastic dominance, Journal Article, Elsevier

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