efficient diversification according to stochastic dominance criteria this paper develops the first operational tests of portfolio efficiency based on the general stochastic dominance sd criteria that account for an infinite set of diversification strategies the main insight is to preserve the cross sectional dependence of asset returns when forming portfolios by reexpressing the sd criteria int dimensional euclidean space with elements representing rates of return int different states of nature we characterize subsets of this state space that dominate a given evaluated return vector by first and second order sd this allows us to derive simple sd efficiency measures and test statistics computable by standard mathematical programming algorithms the sd tests and efficiency measures are illustrated by an empirical application that analyzes industrial diversification of the market portfolio

stochastic dominance and mean variance measures of profit and loss for business planning and investment in this paper we first extend the stochastic dominance sd theory by introducing the first three orders of both ascending sd asd and descending sd dsd to decisions in business planning and investment to risk averse and risk loving decision makers so that they can compare both return and loss we provide investors with more tools for empirical analysis with which they can identify the first order asd and dsd prospects and discern arbitrage opportunities that could increase his her utility as well as wealth and set up a zero dollar portfolio to make huge profit our tools also enable investors and business planners to identify the third order asd and dsd prospects and make better choices to complement the stochastic dominance approach we also introduce an improved mean variance criterion to decisions in business planning or investment on both return and loss for risk averse and riskloving investors we then illustrate the superiority of the present approaches with well known examples in the literature and discuss the relationship between the improved stochastic dominance and mean variance criteria

pricing and risk management of interest rate swaps this paper reformulates the valuation of interest rate swaps swap leg payments and swap risk measures all under stochastic interest rates as a problem of solving a system of linear equations with random perturbations a sequence of uniform approximations which solves this system is developed and allows for fast and accurate computation the proposed method provides a computationally efficient alternative to monte carlo based valuations and risk measurement of swaps this is demonstrated by conducting numerical experiments and so our method provides a potentially important real time application for analysis and calculation in markets

consistent testing for stochastic dominance under general sampling schemes we propose a procedure for estimating the critical values of the extended kolmogorov smirnov tests of stochastic dominance of arbitrary order in the general k prospect case we allow for the observations to be serially dependent and for the first time we can accommodate general dependence amongst the prospects which are to be ranked also the prospects may be the residuals from certain conditional models opening the way for conditional ranking we also propose a test of prospect stochastic dominance our method is based on subsampling and we show that the resulting tests are consistent and powerful against some n 1 2 local alternatives we also propose some heuristic methods for selecting subsample size and demonstrate in simulations that they perform reasonably we describe an alternative method for obtaining critical values based on recentring the test statistic and using full sample bootstrap methods we compare the two methods in theory and in practice

the impact of hospital market structure on patient volume average length of stay and the cost of care a variety of recent proposals rely heavily on market forces as a means of controlling hospital cost inflation sceptics argue however that increased competition might lead to cost increasing acquisitions of specialized clinical services and other forms of non price competition as means of attracting physicians and patients using data from hospitals in 1972 we analyzed the impact of market structure on average hospital costs measured in terms of both cost per patient and cost per patient day under the retrospective reimbursement system in place at the time hospitals in more competitive environments exhibited significantly higher costs of production than did those in less competitive environments

almost marginal conditional stochastic dominance marginal conditional stochastic dominance mcsd developed by shalit and yitzhaki 1994 gives the conditions under which all risk averse individuals prefer to increase the share of one risky asset over another in a given portfolio in this paper we extend this concept to provide conditions under which most and not all risk averse investors behave in this way instead of stochastic dominance rules almost stochastic dominance is used to assess the superiority of one asset over another in a given portfolio switching from mcsd to almost mcsd amcsd helps to reconcile common practices in asset allocation and the decision rules supporting stochastic dominance relations a financial application is further provided to demonstrate that using amcsd can indeed improve investment efficiency

the effect of competition on the practice of outpatient services for diabetes patients at different levels of hospitals in taiwan this paper empirically analyses hospital non price competition in a market characterized by a government accreditation system in taiwan outpatient services for diabetes patients were used to measure the quality of patient care in outpatient departments in three types of hospitals the hypothesis that an increase in the number of highest accredited hospitals medical centres would improve the quality of care in other types of hospitals is rejected however after carefully controlling endogeneity and measurement error of the hospital competition index by using instrumental variables empirical findings based on the national health insurance research database from 1997 to 1999 show that different types of hospitals may respond to competitive pressure from the various levels of hospitals differently positive spillover effects were found from competition from regional and district hospitals these findings may deserve serious consideration when forming policy to allocate medical resources to different le

ranking income distributions a large variety of policy questions involve choices between social states and a consequent ordering of the feasible alternatives when these social states are related to the levels of welfare experienced by individuals or households two central issues stand out in determining the relative desirability of different social outcomes one of these is the essentially positive exercise of achieving comparability between households with different characteristics such as composition or preferences operating in different environments for example facing different price structures the other concerns the normative judgments implicit in the evaluation of alternative allocations of resourcesthe emphasis placed on inequality between households and the extent to which greater inequality can be compensated by higher average living standards this paper focuses on the second of these issues and in doing so we abstract from the problem of household comparability by considering a population of n households identical in all respects except for their incomes the question of ordering social states then becomes one of ranking income distributions over a group of anonymous households or individuals borrowing the usual assumptions imposed on consumer preferences we may suppose that a social ordering of income distributions can be represented by a welfare function 2

the relationship between hospital mortality rates and hospital market and patient characteristics this study analyses the relationship between hospital outcome specifically mortality rates and various hospital and market characteristics the data are for all general acute care hospitals in california in 1991 that had at least 50 medicare cases selected by the health care financing administration hcfa for their computation of 1991 observed and predicted mortality rates the dependent variable was constructed from these mortality rates hospital and market characteristics were obtained from california s office of statewide health planning and development 1991 tapes the american hospital association s annual 1991 report 1990 census data and hcfa s 1991 medicare hospital mortality information report highly significant results p 0 01 were found for three of the predictor variables improved mortality rates were associated with a lower proportion of medicaid patients with a larger market and with a higher prior year profit margin other factors that contributed to improved mortality rates p

tax incentives turnover costs and private pensions there are a number of important motivating factors for both workers and firms that stimulate the formation of private pensions workers may desire a pension as a means of saving for retirement private pensions may be preferable to other types of retirement annuities because of the well known favorable tax treatment afforded pensions by placing money in a private pension account the workers can in most cases receive a higher return than from a comparable non pension investment the demand for pensions however is tempered by their relative riskiness and illiquidity 2 one of the main motives of firms for offering a pension is to reduce costs and thereby increase profits if turnover is costly to firms such as when they invest in their workers training the reduction of quits can be profitable pensions with delayed vesting provision tend to reduce turnover by increasing the workers costs of quitting while it is certainly useful to isolate the important factors that influence the formation of private pensions such analysis is necessarily incomplete private pension agreements are not reached in isolation but are part of an overall agreement between a firm and its workers the terms of a pension agreement are affected as well as do affect the path and magnitude of wages in recent years there have been several interesting analyses of the role pensions play in labor contracts schiller and weiss 10 have found empirical support for the proposition that the presence of pensions in a labor contract tends to reduce worker turnover barnow and ehrenberg 1 consider the effects of pensions on labor turnover from the opposite perspective they show that the cost of funding future pension benefits increases as the worker

frontier based vs traditional mutual fund ratings a first backtesting analysis we explore the potential benefits of a series of existing and new non parametric convex and non convex frontier based fund rating models to summarize the information contained in the moments of the mutual fund price series limiting ourselves to the traditional mean variance portfolio setting we test in a simple backtesting setup whether these efficiency measures fare any better than more traditional financial performance measures in selecting promising investment opportunities the evidence points to a remarkable superior performance of these frontier models compared to most but not all traditional financial performance measures

price and concentration in hospital markets the switch from patient driven to payer driven competition perhaps the most widely accepted paradigm of industrial organization i o is that competition lowers prices or alternatively that price cost margins are lower in less concentrated markets 1 the applicability of this paradigm for hospital markets has been questioned for example in united states vs carilion health system and roanoke valley hospital the district and appellate courts accepted evidence that hospital prices are lower in more concentrated markets and thereby approved a merger between the two largest hospitals in a three hospital market 2 the view that competition has a weak or perverse effect on hospital prices is shared by a number of researchers 3 is a common theme in newspaper stories

empirical tests for stochastic dominance efficiency we derive empirical tests for the stochastic dominance efficiency of a given portfolio with respect to all possible portfolios constructed from a set of assets the tests can be computed using straightforward linear programming bootstrapping techniques and asymptotic distribution theory can approximate the sampling properties of the test results and allow for statistical inference our results could provide a stimulus to the further proliferation of stochastic dominance for the problem of portfolio selection and evaluation using our tests the fama and french market portfolio is significantly inefficient relative to benchmark portfolios formed on market capitalization and book to market equity ratio

multivariate proxies and asset pricing relations abstract a framework is developed in which inferences can be made about the validity of an equilibrium asset pricing relation even though the central aggregate in this relation is unobservable a multivariate proxy for the true market portfolio consisting of an equal weighted stock index and a long term government bond index is employed in an investigation of the sharpe lintner capm the empirical evidence suggests that we can reject the joint hypothesis that a capm is valid and b multiple correlation between the true market portfolio and proxy assets exceeds 0 7 connections to the equilibrium factor pricing literature are also explored

competition among hospitals the traditional view of hospital competition has posited that hospitals compete primarily along quality dimensions in the form of fancy equipment to attract admitting physicians and pleasant surroundings to entice patients price competition among hospitals is thought to be non existent this paper estimates the effects of various hospital market characteristics on hospital prices and expenses in an attempt to determine the form of hospital competition the results suggest that both price and quality competition are greater in markets that are less concentrated although the net effect of the two on prices is insignificant it appears therefore that despite important distortions hospital markets are not immune to standard competitive forces

a note on asset proportions stochastic dominance and the 50 rule in this note we analyze the composition of an optimal portfolio by considering the cumulative conditional expected outcome of two dependent assets we develop a conditional stochastic dominance relation and show that for any concave von neumann morgenstern utility function the proportion of wealth invested in the dominant asset will be greater than 50

portfolio choice based on third degree stochastic dominance we develop an optimization method for constructing investment portfolios that dominate a given benchmark portfolio in terms of third degree stochastic dominance our approach relies on the properties of the semivariance function a refinement of an existing superconvex dominance condition and quadratic constrained programming we apply our method to historical stock market data using an industry momentum strategy our enhanced portfolio generates important performance improvements compared with alternatives based on mean variance dominance and second degree stochastic dominance relative to the center for research in security prices all share index our portfolio increases average out of sample return by almost seven percentage points per annum without incurring more downside risk using quarterly rebalancing and without short selling this paper was accepted by lauren cohen finance

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the income tax and nonwage compensation d ramatic changes in the division of labor compensation between wage and nonwage payments have occurred since world war ii voluntary employer contributions to private pension and welfare funds have risen from 1 2 of wage and salary compensation in 1947 to 8 3 in 1979 with half the increase taking place since 1969 see table 1 major changes in the composition of the fringe benefit package have also taken place during this period employer contributions to group health insurance plans have risen from 24 of total fringe benefits in 1947 to 40 o in 1979 if this growth continues group health insurance will replace pension and profit sharing plans as the largest fringe benefit expenditure by employers these trends in the compensation mix have long been noted by researchers and various factors have been offered as explanations including the favorable tax treatment of fringe benefits demographic changes such as increased life expectancy and unionization rice 1966 ture 1976 mabry 1973 freeman 1978 however most explanations have not been subjected to rigorous empirical testing and the few results that have been published are both questionable and dated for example rice 1966 estimated that changes in the tax rate structure had little influence on the relative increase in fringe benefits from world war ii to 1963 more recent studies schiller and weiss 1979 1980 have examined a specific fringe benefit the private pension plan for its impact on turnover and its role as an equalizing difference but these studies have not analyzed the determinants of the compensation mix this paper discusses the theoretical determinants of the division of labor compensation between fringe benefits and cash income and empirically estimates their importance it concentrates on the impact of taxation on the compensation mix for several reasons first the assumption that rising tax rates encourage individuals to substitute fringe benefits for cash income underlies estimates of the welfare cost of tax preferences browning 1979 second proposals to fully tax employee fringe benefits under a comprehensive9 income tax have surfaced in recent years nolan 1977 clotfelter 1979 finally current federal tax policy is calling for large tax rate reductions to increase supply incentives unlike the determinants of the compensation mix that change slowly over time such as life expectancy tax rate changes can occur rapidly through legislative action reducing tax rates might enlarge the tax base by increasing the fraction of labor income received as taxable cash wages and salaries section ii outlines the tax treatment of various forms of labor compensation and in section iii other factors thought to influence the choice between wage and nonwage compensation are discussed empirical analyses of the compensation mix are presented in section iv a brief summary and implications of the major findings for the future growth of fringe benefits follow in section v

bonds versus stocks investors age and risk taking abstract it has become increasingly popular to advise investors to relocate their funds from a primarily stock portfolio to a primarily bond portfolio as they get older however the well known decision rules such as mean variance or stochastic dominance rules are unable to explain this common practice almost stochastic dominance asd and almost mean variance amv approaches are used to examine the dominance of stock and bond portfolios asd and amv rules unambiguously support the popular practice of advising higher stock to bond ratio for long investment horizons hence we provide an explanation to the practitioners recommendation within the expected utility paradigm

has the caveat of case mix based payment influenced the quality of inpatient hospital care in portugal portugal was the first country with a national health system to incorporate diagnosis related group drg case mix adjustment in formulating hospital budgets on a nation wide basis most of the case mix payment outcomes literature comes from the usa where the quality of data is superior to that of many other countries the purpose of this article is to assess the initial impact of case mix financing on the quality of inpatient care in portuguese hospitals using a methodology that may be appropriate for health care systems whose information is not as complete as that of the usa estimating a count data model at the hospital level with inpatient mortality as a quality indicator the authors find no evidence that case mix based payment has had adverse consequences on inpatient mortality for the most frequent non obstetric drg during the three year time period under study

theories of risk testing investor behaviour on the taiwan stock and stock index futures markets investor behavior towards risk lies at the heart of economic decision making in general and modern investment theory and practice in particular this paper uses both the mean variance mv criterion and stochastic dominance sd procedures to analyze the preferences for four of the most widely studied investor types in the taiwan stock and stock index futures market we find that risk averters concave utility function prefer spot to futures whereas risk seekers convex utility function prefer futures to spot our findings also show that investors with s shaped utility functions prefer spot futures to futures spot when markets move upward downward finally our results imply that investors with reverse s shaped utility functions prefer futures spot to spot futures when markets move upward downward these results are robust with respect to sub periods spot returns including dividends and diversification although we do not check whether risk averters risk seekers and investors with s shaped and reverse sshaped utility functions actually exist in the market we do show that their existence is plausible the implications of our findings on market efficiency and the existence of arbitrage opportunities are also discussed in this study

the effects of market structure and bargaining position on hospital prices ppos and hmos have gained widespread acceptance due in part to the belief that excess capacity and competitive market conditions can be leveraged to negotiate lower prices with health care providers we investigated prices obtained in different types of markets by the largest ppo in california our findings indicate that greater hospital competition leads to lower prices furthermore as the importance of a hospital to the ppo in an area increases the price rises substantially our testing of alternative methods for defining hospital geographic markets reveals that the common practice of using counties to define the market leads to an underestimate of the price increasing effects of a merger

marginal conditional stochastic dominance this paper introduces the concept of marginal conditional stochastic dominance mcsd which states the conditions under which all risk averse individuals when presented with a given portfolio prefer to increase the share of one risky asset over that of another mcsd rules also answer the question of whether all risk averse individuals include a new asset in their portfolio when assets returns are correlated mcsd criteria are expressed in terms of the probability distributions of the assets and of the underlying portfolio an empirical application of mcsd is provided using stocks traded on the new york stock exchange mcsd rules are used to show that in the long run one cannot assert that the market portfolio is inefficient

asset proportions in optimal portfolios the paper is concerned with conditions under which the proportion of a given asset in the optimal portfolio of a risk averse agent is at least as large as some given proportion the paper provides a condition that is necessary and sufficient for such a result to hold the analysis is then confined to portfolios in which the distributions of assets differ by either a first degree stochastic dominance shift or by a mean preserving shift examples are provided to show that under some conditions a risk averter may invest a smaller proportion of his wealth in the dominating asset than in the dominated asset the paper then provides conditions that are necessary and sufficient for a risk averter to invest more in the dominating asset the question of whether risk averse agents should or should not choose diversified portfolios as opposed to specialized ones has been analysed quite extensively in the literature examples of such works are samuelson 1967 brumelle 1974 hadar and russell 1974 russell and seo 1979 hadar and seo 1980 and macminn 1984 what has not been examined at all except for very special cases is the question of the optimal proportions of the various assets in a diversified portfolio in this paper we present conditions which imply that the optimal amount invested in a particular asset is at least as large as some given proportion of the available fund in the case of two asset portfolios one may especially want to know which of the two assets represents more than half the investible fund indeed we find it convenient to start the analysis with the two asset case while the extension to n asset protfolios is essentially straightfoward it is presented in a subsequent section focusing first on the two asset case will make it easier for the reader to see the main logical steps in the proofs of the theorems some of our analysis is facilitated by the use of a particular subset of risk averters this subset has the property that if its members behave in a particular way then all risk averters behave in that way we refer to such a subset as a representative set of all risk averters 2 the usefulness of the representative set derives from the fact that its members have utility functions of a very simple form consisting of two linear pieces and its applicability to the problems on hand derives from the fact that any concave function can be approximated by a linear combination of members of the representative set in the next section we present some formal results demonstrating the equivalence of unanimity among members of the representative set and unanimity among all risk averters in certain types of choice situations these theorems are then used in section 3 in which we present the results about optimal asset proportions

making inefficient market indices efficient this paper uses the concept of marginal conditional stochastic dominance and a generalization of the 50 portfolio rule to develop a tractable and parsimonious methodology for constructing a second degree stochastic dominance ssd efficient portfolio from a given inefficient index because the ssd approach considers the entire probability distributions of asset returns the resulting portfolios are efficient with respect to all risk averse utility maximizing investors regardless of the form of their utility functions or the distributions of asset returns

market share and the illusion of power can blue cross force hospitals to discount researchers in health care financing have claimed that large private insurers like blue cross frequently exercise monopsony power to obtain discounts from normal hospital charges they claim that the monopsony power derives from a large blue cross share of a given hospital cost shifting whereby hospitals offset the discount by raising charges to less powerful customers this paper re examines both theoretically and empirically the conditions necessary for a private insurer to extract discounts from a hospital we demonstrate that the theoretical conditions necessary for blue cross to force a discount do not exist in the indiana market using revenue data from 110 indiana hospitals we reject the traditional claim that blue cross pays less than other insurers as a function of market share