| Abstract: | This paper discusses the Stochastic Dominance (SD) approach to the evaluation of risky assets. Given a set of portfolios, the familiar EV procedure chooses a set of EV-efficient portfolios while the SD procedures choose SD-efficient sets that usually are quite similar to (but not identical with) the EV-efficient set. The SD approach can be employed as a refinement of the EV model or as an alternative method of evaluating portfolios. The SD view has certain conceptual advantages in the screening of a set of portfolios, but the EV model has the important advantage of an optimizing algorithm that builds efficient portfolios. Also, the SD approach requires more data than the EV approach. |
