Working Paper

Bootstrap tests of stochastic dominance with asymptotic similarity on the boundary

Authors

Oliver Linton, Kyungchui (Kevin) Song, Yoon-Jae Whang

Published Date

10 March 2008

Type

Working Paper (CWP08/08)

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.


Latest version

An improved bootstrap test of stochastic dominance
Oliver Linton, Song, Kyungchul, Yoon-Jae Wang
CWP