Document Type

Journal Article

Department/Unit

Department of Economics

Language

English

Abstract

By incorporating both majorization theory and stochastic dominance theory, this paper presents a general theory and a unifying framework for determining the diversification preferences of risk-averse investors and conditions under which they would unanimously judge a particular asset to be superior. In particular, we develop a theory for comparing the preferences of different convex combinations of assets that characterize a portfolio to give higher expected utility by second-order stochastic dominance. Our findings also provide an additional methodology for determining the second-order stochastic dominance efficient set.

Keywords

Majorization, Stochastic dominance, Portfolio selection, Expected utility, Diversification

Publication Date

2010

Source Publication Title

European Journal of Operational Research

Volume

200

Issue

3

Start Page

893

End Page

900

Publisher

Elsevier

Peer Reviewed

1

DOI

10.1016/j.ejor.2009.01.007

Link to Publisher's Edition

http://dx.doi.org/10.1016/j.ejor.2009.01.007

ISSN (print)

03772217

Included in

Economics Commons

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