eradicating diseases the effect of conditional cash transfers on vaccination coverage in rural nicaragua despite significant global efforts to improve vaccination coverage against major childhood diseases vaccination rates are below 90 to eradicate diseases such as measles however vaccination rates close to 95 are needed we use a randomized experiment to investigate the effect of a demand incentive a conditional cash transfer program in improving vaccination coverage in rural nicaragua double difference estimates show the program led to large increases in vaccination coverage and these resulted in vaccination levels greater than 95 for some vaccines effects were especially large for children who are typically harder to reach with traditional supply side interventions

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

comparing risks by acceptance and rejection stochastic dominance is a partial order on risky assets gambles that is based on the uniform preference of all decision makers in an appropriate class for one gamble over another we modify this requirement first by taking into account the status quo given by the current wealth and the possibility of rejecting gambles and second by comparing rejections that are substantive i e uniform over wealth levels or over utilities this yields two new stochastic orders wealth uniform dominance and utility uniform dominance unlike stochastic dominance these two orders are complete any two gambles can be compared moreover they are equivalent to the orders induced by respectively the aumann serrano index of riskiness and the foster hart measure of riskiness

optimal insurance design with random initial wealth abstract an optimal insurance policy is designed when the policyholder faces both insurable and uninsurable risks under a realistic behavioral assumption it may display a disappearing deductible if the uninsurable loss becomes riskier according to any degree of stochastic dominance as the insurable loss increases

who does not respond in the household expenditure survey a nonparametric multiple regression method based on the extended gini that depends on one parameter v is investigated the parameter v enables production of infinite alternative linear approximations to the regression curve which differ in the weighting schemes applied to the slopes of the curve the method allows the investigator to stress different sections of one independent variable while keeping the treatment of the other independent variables intact as an application we investigate nonresponse patterns in a survey of household expenditures to learn about the relationship between nonresponse and income the empirical results show that the higher the income the higher the response rate and the larger the household the higher the response rate the arab population tends to respond more than the jewish one whereas the ultrareligious group tends to respond less than the rest of the population the implications on the bias in the estimates are discussed

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

an equilibrium efficiency frontier data envelopment analysis approach for evaluating decision making units with fixed sum outputs abstract based on the minimal reduction strategy yang et al 2011 developed a fixed sum output data envelopment analysis fsodea approach to evaluate the performance of decision making units dmus with fixed sum outputs however in terms of such a strategy all dmus compete over fixed sum outputs with no memory that will result in differing efficient frontiers evaluations to address the problem in this study we propose an equilibrium efficiency frontier data envelopment analysis eefdea approach by which all dmus with fixed sum outputs can be evaluated based on a common platform or equilibrium efficient frontier the proposed approach can be divided into two stages stage 1 constructs a common evaluation platform via two strategies an extended minimal adjustment strategy and an equilibrium competition strategy the former ensures that original efficient dmus are still efficient guaranteeing the existence of a common evaluation platform the latter makes all dmus achieve a common equilibrium efficient frontier then based on the common equilibrium efficient frontier stage 2 evaluates all dmus with their original inputs and outputs finally we illustrate the proposed approach by using two numerical examples

some models for estimating technical and scale inefficiencies in data envelopment analysis in management contexts mathematical programming is usually used to evaluate a collection of possible alternative courses of action en route to selecting one which is best in this capacity mathematical programming serves as a planning aid to management data envelopment analysis reverses this role and employs mathematical programming to obtain ex post facto evaluations of the relative efficiency of management accomplishments however they may have been planned or executed mathematical programming is thereby extended for use as a tool for control and evaluation of past accomplishments as well as a tool to aid in planning future activities the ccr ratio form introduced by charnes cooper and rhodes as part of their data envelopment analysis approach comprehends both technical and scale inefficiencies via the optimal value of the ratio form as obtained directly from the data without requiring a priori specification of weights and or explicit delineation of assumed functional forms of relations between inputs and outputs a separation into technical and scale efficiencies is accomplished by the methods developed in this paper without altering the latter conditions for use of dea directly on observational data technical inefficiencies are identified with failures to achieve best possible output levels and or usage of excessive amounts of inputs methods for identifying and correcting the magnitudes of these inefficiencies as supplied in prior work are illustrated in the present paper a new separate variable is introduced which makes it possible to determine whether operations were conducted in regions of increasing constant or decreasing returns to scale in multiple input and multiple output situations the results are discussed and related not only to classical single output economics but also to more modern versions of economics which are identified with contestable market theories

how trading institutions affect financial market performance some laboratory evidence i introduction trading institutions vary considerably across contemporary financial markets 1 but most can be classified into one of two basic types the continuous double auction da allows traders to submit public offers to buy or to sell and to accept other traders offers at any moment in time the double auction institution offers immediacy but non uniform transaction prices the other basic trading institution the clearinghouse ch gathers offers and clears them at a unified price at a pre specified time it sacrifices immediacy for uniform transaction prices 2 the two types of institutions have co existed and evolved for centuries but now are emerging in new electronic versions market participants and policy makers would like to know which institution or variant or combination is most efficient but theoretical and empirical work to date provides little guidance this paper reports on a series of laboratory asset markets experiments designed to compare variants of the double auction and clearinghouse trading institutions the markets are small usually with eight or nine traders but the traders are profit motivated and experienced with the trading institutions the traded asset has uncertain market value and traders receive useful but inconclusive private information they can only learn the asset s true value during the course of trade laboratory markets offer several advantages for empirical study of financial market institutions first private information is observable even controllable in the laboratory and therefore the investigator can directly measure market efficiency 3 second the complexity of the environment can be varied systematically in the laboratory and its effects on market performance can be separated from the effects of the market institution and other forces finally the market institution itself is controllable in the laboratory so it is possible to make valid causal inferences on how the market institution shapes market performance i begin with a survey of relevant literature and other preliminaries in the rest of this section section ii outlines the laboratory procedures the creation of trading environments of varying complexity the electronic implementation of the clearinghouse and double auction trading institutions the computation of theoretical benchmark prices and allocations and the measurement of market performance section iii collects the results following an illustrative account of a double auction trading period and a clearinghouse trading period i use descriptive statistics to summarize market performance in each of the thirty nine experiments the main conclusions are based on statistical comparisons of market performance across alternative market institutions the clearinghouse institution does surprisingly well it delivers greater market depth than the double auction discovers prices at least as efficiently and produces final allocations almost as efficient as the double auction the main institutional variants examined in this paper concern the amount of information made public regarding order placement orderflow the data suggest that public display of the orderflow enhances double auction efficiency but may impair clearinghouse efficiency a study of trading volume shows higher volume in the double auction in both institutions volume increases when important private news arrives and when the trading period is about to end the paper concludes with a brief summary and discussion of the results a companion paper friedman 1991 considers the effects of awarding various privileges to some but not all traders copeland and friedman 1987 1991 provide useful background information on laboratory procedures and computerized double auction markets instructions for the current experiments are available on request the need for empirical work a skeptic might argue that empirical work is unnecessary the mere fact that the double auction and clearinghouse institutions both persist in major financial markets implies that both are highly efficient because a more efficient institution would displace less efficient institutions

remittances and inequality in this paper the authors propose a framework and develop techniques for analyzing the impact of migrant remittances on the distribution of rural income by size and subsequently its impact on rural welfare household data are used to assign numerical coefficients to the impact of net remittances from both internal and international migrants on income inequality in 2 mexican villages the impact of migrant remittances on the distribution of rural income by size depends critically on the degree to which migration opportunities become diffused through the village population on the returns to human capital embodied in remittances and on the distribution of potentially remittance enhancing skills and education across village households our empirical findings demonstrate that in a village where many households contain internal migrants but few have experience migrating to the u s remittances from mexico to us migrants have an unequalizing impact on village incomes while remittances from internal migrants have a favorable effect on the village income distribution by contrast in a village with a long historyh of sending migrants to the us and hence a more ready access to us labor markets us to mexico remittances have an equalizing impact on incomes remittances from internal migrants in this village however embody a large human capital component and are highly correlated with household income hence internal migrant remittances account for a comparatively large share of inequalities in the 2nd village the overall effect of remittances on income inequality is favorable in both villages migration type migration stage and interaction terms all appear to play a role in this context the effects of small changes in remittances upon income inequality and rural welfare in the 2 villages are explored and some implications for migration and rural development policy are considered authors modified

efficient selection of insured currency positions protective puts vs fiduciary calls we examine the empirical results from implementation of portfolio insurance strategies employing currency spot and futures options hypotheses are generated from ogden and tucker s 1988 generalizations concerning the relative values of american spot currency options and currency futures options we find that protective puts using futures options are generally dominated by both protective puts that use options on spot currencies and by fiduciary calls on futures contracts this suggests that the prices of puts on foreign currency futures contracts are too high relative to foreign currency futures calls and to puts on spot currencies

traders expectations in asset markets experimental evidence we elicit traders predictions of future price trajectories in repeated experimental markets for a 15 period lived asset we find that individuals beliefs about prices are adaptive and primarily based on past trends in the current and previous markets in which they have participated most traders do not anticipate market downturns the first time they participate in a market and when experienced they typically overestimate the time remaining before market peaks and downturns occur when prices deviate from fundamental values belief data are informative to an observer in predicting the direction of future price movements and the timing of market peaks

greater mutual aggravation a large strand of research has identified when i a single risk is undesirable and ii two independent risks aggravate each other we extend this line of inquiry by establishing when iii mutual aggravation is greater for greater risks this natural property of greater mutual aggravation explains recent experimental findings on higher order risk preferences and can guide managerial behavior when risks in the decision environment become more severe the online appendix is available at https doi org 10 1287 mnsc 2017 2746 this paper was accepted by han bleichrodt decision analysis

the effects of market practices in oligopolistic markets an experimental examination of the ethyl case this study reports on the performance of experimental markets characterized by industrial structure and practices similar to those at issue in the ethyl case the central question is whether price competition is affected by the practices of advanced notification of price changes and most favored nation contracts or is determined by industrial organization and concentration alone

longer term effects of head start specially collected data on adults in the panel study of income dynamics are used to provide evidence on the longer term effects of head start an early intervention program for poor preschool age children whites who attended head start are relative to their siblings who did not significantly more likely to complete high school attend college and possibly have higher earnings in their early twenties african americans who participated in head start are less likely to have been booked or charged with a crime there is some evidence of positive spillovers from older head start children to their younger siblings language en

almost stochastic dominance and stocks for the long run abstract the geometric mean argument and the recently developed almost stochastic dominance criterion have been employed to make the case for stocks for the long run we show that almost stochastic dominance and the geometric mean argument do not necessarily support long run investment in equities in fact for standard preferences bonds may be preferred to stocks for the long run while stocks are preferred for shorter horizons

linear tests for decreasing absolute risk aversion stochastic dominance we develop and implement linear formulations of convex stochastic dominance relations based on decreasing absolute risk aversion dara for discrete and polyhedral choice sets our approach is based on a piecewise exponential representation of utility and a local linear approximation to the exponentiation of log marginal utility an empirical application to historical stock market data suggests that a passive stock market portfolio is dara stochastic dominance inefficient relative to concentrated portfolios of small cap stocks the mean variance rule and nth order stochastic dominance rules substantially underestimate the degree of market portfolio inefficiency because they do not penalize the unfavorable skewness of diversified portfolios in violation of dara this paper was accepted by james smith decision analysis

resampling dea estimates of investment fund performance abstract data envelopment analysis dea is attractive for comparing investment funds because it handles different characteristics of fund distribution and gives a way to rank funds there is substantial literature applying dea to funds based on the time series of funds returns this article looks at the issue of uncertainty in the resulting dea efficiency estimates investigating consistency and bias it uses the bootstrap to develop stochastic dea models for funds derive confidence intervals and develop techniques to compare and rank funds and represent the ranking it investigates how to deal with autocorrelation in the time series and considers models that deal with correlation in the funds returns

income risk and farm consumption behavior abstract using panel data from illinois grain farmers a direct test of the relationship between income risk and farm consumption behavior is conducted the estimation results indicate that income risk significantly affects farm consumption and the results are robust using alternative risk measures this finding casts doubt on the relevance of the conventional life cycle permanent income hypothesis which implies that risk has no effect on consumption

efficient algorithms for stochastic dominance tests based on financial market data it is known that when the random variables being compared have a uniform probability measure as is the case when using financial market data the computation of efficient sets for first and second degree dominance can be greatly simplified if majorization conditions are used instead of the dominance definitions this paper presents an equally efficient technique for third degree dominance

efficiency of mutual funds and portfolio performance measurement a non parametric approach abstract in finance portfolio performance assessment is an important area of research the two popular indices of performance are the jensen s alpha and the sharpe index however there are a number of shortcomings of the above measures that have been highlighted in the literature we propose a new measure of performance that seeks to address the limitations of the earlier indices the new index is calculated by employing a well known method in operations research called data envelopment analysis we show the benefits of the proposed approach and assess the performance of mutual funds we compare the results with traditional indices of performance an interesting result we obtain is that the mutual funds are all approximately mean variance efficient

a portfolio optimality test based on the first order stochastic dominance criterion existing approaches to testing for the efficiency of a given portfolio make strong parametric assumptions about investor preferences and return distributions stochastic dominance based procedures promise a useful nonparametric alternative however these procedures have been limited to considering binary choices in this paper we take a new approach that considers all diversified portfolios and thereby introduce a new concept of first order stochastic dominance fsd optimality of a given portfolio relative to all possible portfolios using our new test we show that the u s stock market portfolio is significantly fsd nonoptimal relative to benchmark portfolios formed on market capitalization and book to market equity ratios without appealing to parametric assumptions about the return distribution we conclude that no nonsatiable investor would hold the market portfolio in the face of the attractive premia of small caps and value stocks

negative moments risk aversion and stochastic dominance a simple moment ordering condition is shown to be necessary for stochastic dominance closely related results on generalizations of the geometric and harmonic means are also provided an ordering of the moment generating functions is shown to be necessary and sufficient for stochastic dominance the results have a straightforward and useful interpretation in terms of constant relative and absolute risk aversion utility functions these results are used to provide necessary and sufficient conditions for optimality of distributions on an important class of utility functions

a goal seeking investment model a probabilistic investment model is formulated as a wiener process with a barrier a planning horizon targeted rate of return discount rate and the mean and variance rate of return are the important parameters in the model sensitivity analyses are studied several significant statements can be made 1 contrary to traditional mean variance portfolio models rate of return variance may not always be an undesirable characteristic since higher variance can increase the chances of achieving certain types of investment goals 2 one can almost always achieve certain types of investment goals if the time horizon is sufficiently long

comparative statics and non expected utility preferences abstract researchers have shown that many though not all of the basic results of expected utility analysis can be more or less directly generalized to non expected utility preferences this paper describes the essential difference between results which can be extended in this manner and those which cannot and shows that an important family of comparative statics theorems falls into the former class

an empirical analysis of term premiums using stochastic dominance abstract this paper examines term premiums in u s treasury bill monthly holding period returns several techniques are employed to ascertain whether the observed term premiums are economically meaningful no second order stochastic dominance is found in the first five month maturities when a riskless asset is assumed the first two maturities are dominated therefore we conclude that although there are statistically significant term premiums they are not economically meaningful if there is no riskless borrowing and lending the term premiums are economically meaningful in the sense that the longer maturities dominate the shorter maturities when a riskless asset is available

stochastic dominance vs mean variance portfolio analysis an empirical evaluation most of the work in portfolio theory in the past decade has been based on the principle of utility maximization where either the investor s utility function is assumed to be a second degree polynomial with a positive first derivative and a negative second derivative or the probability functions are assumed to be normal if at least one of these conditions holds it can be shown that choosing among risky assets on the basis of their mean and variance only is consistent with the von neumann morgenstern utility maximization model thus given the above assumptions the incorporation of higher moments of a distribution and the adoption of alternative approaches to portfolio selection have largely been ignored in favor of the more familiar mean variance approaches

stochastic dominance in an ordinal world abstract existing stochastic dominance rules apply to variables such as income wealth and rates of return all of which are measured on cardinal scales this study develops and applies stochastic dominance rules for ordinal data it is shown that the new rules are consistent with the traditional von neumann morgenstern expected utility approach and that they are applicable and relevant in a wide variety of managerial decision making situations where existing stochastic dominance rules fail to apply we apply ordinal sd rules to the transformation of random variables

market reaction to quarterly earnings announcements a stochastic dominance based test of market efficiency the use of the capm in empirical research is subject to some criticism in light of this criticism the stochastic dominance criteria are offered as an alternative research method for the examination of market efficiency the underlying assumptions of the two frameworks are discussed and the stochastic dominance technique is demonstrated via the examination of market reaction to quarterly earnings announcements during the 24 quarters commencing with october 1962 the findings are compared to those of watts watts r the time series behavior of quarterly earnings unpublished paper university of newcastle newcastle n s w 1975 quoted in watts 1978 who utilized the same data base in contrast to watts conclusion our analysis suggests that the market was efficient during the entire period examined and that no significant differences in market behavior between the first and the second 12 month periods was evident the discord may be attributed to the relative effectiveness of the two analytical tool

equilibrium with investors using a diversity of deviation measures abstract it has been argued that investors who optimize their portfolios with attention paid only to mean and standard deviation will all end up choosing some multiple of a certain master fund portfolio justification for the capital asset pricing model of classical portfolio theory which relates individual assets to such a master fund has come from this direction in particular attempts have been made to provide solid mathematical support by showing that the imputed behavior of investors is a consequence of price equilibrium in a market in which assets are traded subject to budget constraints and optimization is carried out with respect to utility functions that depend only on mean and standard deviation in recent years reliance on standard deviation has come under increasing criticism because of inconsistencies in its effect on portfolio preferences one response has been to introduce generalized measures of deviation which lead to alternative master funds the market implications of such extensions of theory have hitherto been unclear but in this paper the existence of equilibrium is established in circumstances where nonstandard deviations are admitted equilibrium is guaranteed even when different investors use different measures of deviation and thereby end up with portfolios scaled from different master funds whether they employ the same measure or not they may impose caps on deviation which likewise may be different

the robustness of risk return nonlinearities to the normality assumption in a recent study tinic and west 1986 empirically reexamine the risk return relationship posited by the traditional mean variance capm they find a positive nonlinear relationship between risk and return except during january when the market rewards bearing nonsystematic risk this study examines the hypothesis that nonnormality of re turn distributions may account for some of these anomalous results we compare shalit and yitzhaki s 1984 mean extended gini capm an equilibrium asset pricing relation that is independent of the form of the underlying asset distribution with the traditional capm our results indicate that the nonlinear risk return relationship and the size and january effects are robust to nonnormality of return distributions

mean gini analysis of stochastic externalities the case of groundwater contamination the mean gini approach is used to analyze stochastic externalities generated by agricultural production the model addresses the problem of groundwater pollution caused by excessive fertilizer application inherent in the mean gini approach to expected utility maximization is a two fold value the simplicity of the two parameter mean variance model and satisfaction of necessary and sufficient conditions for stochastic dominance price and quantity policy recommendations to control externalities are formulated based upon the relative assessment of uncertainty by the regulatory authority and the farmers using the gini as a measure of risk allows for the quantification of control policy measures under differentiated risk aversion and multiple sources of pollution the model shows that when producers underestimate uncertainty quota policies restricting fertilizer are more efficient than tax policies in reducing groundwater contamination

ordering uncertain options under inflation a note stochastic dominance rules sd have been extended to the case where investors are allowed to borrow and lend at the riskless interest rate stochastic dominance rules with a riskless asset sdr are much more effective than sd rules however it seems that this benefit is eliminated by an uncertain inflation since riskless assets become risky once uncertain inflation is considered we prove in this paper that sdr criteria are valid also in the face of uncertain and independent inflation moreover while the mean variance mv efficient set increases with uncertain inflation the stochastic dominance efficient sets decrease stochastic dominance criteria sd for ordering risky assets were developed mainly in the late sixties following the development of the mean variance rule mv and the capital asset pricing model capm by analogy to the extension of sharpe and lintner of the mv criterion levy and kroll 10 have extended the sd rules by allowing borrowing and lending at the riskless interest rate this extension sharply decreases the size of the efficient set and in some cases an empirical separation is obtained or almost a separation where the efficient set of risky assets includes only one or two risky portfolios see levy and kroll 11 note however that these important economic results rely on the assumption that a riskless asset indeed exists an assumption which cannot be defended in a period of uncertain inflation chen and boness 2 roll 17 and friend et al 5 investigate the impact of inflation on the capm chen and boness assume a quadratic utility function and also make the assumption that the real rate of return is given by the nominal rate of return less the inflation hence ignoring the cross product of inflation and rates of return which greatly simplifies the mathematical analysis roll also assumes a quadratic utility function and further makes the assumption that a riskless asset in real terms exists friend et al assume that returns are generated by a wiener process the investment horizon is infinitesimal and that investors are characterized by constant proportional risk aversion under these assumptions they derive a formula which is analogous to the capm where inflation a random variable is incorporated in the formula it should be noted that by an infinitesimal investment horizon they do away with the cross product of inflation and the rates of return which is equal to zero in this specific case the relationship between the inflation rate and stock prices has been a subject

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

boys cognitive skill formation and physical growth long term experimental evidence on critical ages for early childhood interventions the effects of early life circumstances on cognitive skill formation are important for later human capital development labor market outcomes and well being in this paper we test the hypothesis that the first 1 000 days are the critical window for both cognitive skill formation and physical development by exploiting a randomized conditional cash transfer cct program in nicaragua we find that boys exposed in utero and during the first 2 years of life have better cognitive but not physical outcomes when they are 10 years old compared to those also exposed but in their second year of life or later these results confirm that interventions that improve nutrition and or health during the first 1 000 days of life can have lasting positive impacts on cognitive development for children the finding that the results differ for cognitive functioning and anthropometrics highlights the importance of explicitly considering cognitive tests in addition to anthropometrics when analyzing impacts on early childhood development

data envelopment analysis of mutual funds based on second order stochastic dominance abstract although data envelopment analysis dea has been extensively used to assess the performance of mutual funds mf most of the approaches overestimate the risk associated to the endogenous benchmark portfolio this is because in the conventional dea technology the risk of the target portfolio is computed as a linear combination of the risk of the assessed mf this neglects the important effects of portfolio diversification other approaches based on mean variance or mean variance skewness are non linear we propose to combine dea with stochastic dominance criteria thus in this paper six distinct dea like linear programming lp models are proposed for computing relative efficiency scores consistent in the sense of necessity with second order stochastic dominance ssd the aim is that being ssd efficient the obtained target portfolio should be an optimal benchmark for any rational risk averse investor the proposed models are compared with several related approaches from the literature

a stochastic dominance analysis of yen carry trades abstract yen carry trades have made headline news for over a decade we examine the profitability of such trades for the period 2001 2009 yen carry trades generated high mean returns and sharpe ratios prior to the recent financial crisis they continued to outperform major stock markets for the full sample period given the non normality of carry trade returns we apply non parametric tests based on stochastic dominance sd to evaluate whether the high returns of yen carry trades are compatible with risk as reflected in returns on us and global stock market indices we apply a general test for sd developed recently by linton maasoumi and whang 2005 to six currencies as well as portfolios of these currencies for a large class of risk averse investors profits from yen carry trades cannot be attributed to risks

mean gini portfolio theory and the pricing of risky assets this paper presents the mean gini mg approach to analyze risky prospects and construct optimum portfolios the proposed method has the simplicity of a mean variance model and the main features of stochastic dominance efficiency since mean gini is consistent with investor behavior under uncertainty for a wide class of probability distributions gini s mean difference is shown to be more adequate than the variance for evaluating the variability of a prospect the mg approach is then applied to capital markets and the security valuation theorem is derived as a general relationship between average return and risk this is further extended to include a degree of risk aversion that can be estimated from capital market data the analysis is concluded with the concentration ratio to allow for the classification of different securities with respect to their relative riskiness

when the money runs out do cash transfers have sustained effects on human capital accumulation this study examines the medium term effects of a two year cash transfer program targeted to adolescent girls and young women significant declines in hiv prevalence teen pregnancy and early marriage among recipients of unconditional cash transfers ucts during the program evaporated quickly two years after the cessation of transfers however children born to uct beneficiaries during the program had significantly higher height for age z scores at follow up on the other hand conditional cash transfers ccts offered to out of school females at baseline produced a large increase in educational attainment and a sustained reduction in the total number of births but caused no gains in health labor market outcomes or empowerment the findings point to both the promise and the limitations of cash transfer programs for sustained gains in welfare among young women

the performance of u k investment trusts as internationally diversified portfolios over the period 1968 to 1977 abstract this paper considered the share price performance of a sample of u k closed end funds as internationally diversified portfolios over the ten year period 1968 to 1977 using a performance criterion which does not place restrictions on the form of the distribution functions being compared i e second degree stochastic dominance criterion u k funds are compared to the domestic u k market index as well as against artificially constructed benchmark portfolios which reflect the historical spread of foreign asset holdings of the funds being examined the question addressed is whether u k investors could have out performed internationally diversified u k closed end funds by investing directly into foreign capital markets the performance results in sterling terms indicate that u k international funds were clearly inferior to their assigned benchmark portfolio with the latter mirroring the historical geographical asset spread of the particular fund being examined

agency theory and stochastic dominance recently agency theory has become popular as a means of explaining the structure of contracts between various classes of economic agents oftentimes the contracts of interest represent sharing rules for the payoffs that result from some production activity in the usual two party model of the contracting problem one party designated the principal delegates authority for decisions affecting production to another party designated the agent typically the assumptions made about the consequences of the agent s actions are that they are associated with effort on the part of the agent for which the agent but not the principal has disutility and that greater effort will result in higher payoffs from production in every state of nature moral hazard is then introduced by assuming that the principal is unable to observe the agent s effort or to infer what effort the agent applied through an ex post observation of the payoff that results

third degree stochastic dominance here f x and g x are less than cumulative probability distributionis where x is a continuous or discrete random variable representing the outcome of a prospect the closed interval a b is the sample space of both prospects the integral shown in rule 2 and those shown throughout the paper are stieltjes integrals recall that the stieltjes integral fb f x dg x exists if one of the functions f and g is continuous and the other has finite variation in a b let d1 d2 and d3 be three sets of utility functions x d1 is the set containing all utility functions with 4 x and 1 x continuous and 41 x 0 for all xe a b d2 is the set with x 1 x 2 x continuous and q j x 0 02 x o for all xc a b d3 is the set with x 1 x 2 x 3 x continuous and 1 x 04 2 x o o for all xc a b here 1 x denotes the ith derivative of x hadar and russell proved that rule 1 is valid for all cd1 and rutle 2 is valid for all ed2 the authors point out that the set of probability distributions that can be ordered by means of second degree stochastic dominance is in general larger than that which can be ordered by means of first degree stochastic dominance note that in rule 2 they assume that x is not only an increasing function of x but also exhibits weak global risk aversion a condition guaranteed by requiring the second derivative of x to be nonpositive in this paper a condition which will be called third degree stochastic dominance is considered it is based on the following assumption about the form of the utility function x from a normative point of view one expects the risk premium associated with an uncertain prospect to become smaller the greater is the individual s wealth the plausibility and implications of this assumption h ave been explored by john pratt as well as others the risk premium of an uncertain prospect is that amount by which the certainty equivalent of the prospect differs from its expected value in mathematical terms given the prospect f x with expected value a the corresponding risk premium t is obtained by solving the following equation rb

risk aversion and the propensities for self insurance and self protection for a risk averse individual the methods for reducing the expected financial impact of a loss include reducing the severity of any loss that occurs self insurance and reducing the probability of the occurrence of a loss self protection the literature on this topic has pointed to several anomalies whereby the use of self protection and self insurance yield quite unsimilar results for example ehrlich and becker 5 show that self insurance is always a substitute for market insurance an insurance company s indemnifying a loss whereas self protection and market insurance might be complements dionne and eeckhoudt 4 show that a more risk averse consumer would always invest more in self insurance activities but not necessarily more in self protection activities they argue 4 42 that this result is counterintuitive and provides an exception to the widely accepted result that increased risk aversion reduces risky activities ehrlich and becker 5 639 argue that the incentive to self protect is not so dependent on attitude towards risk both of the above papers seem to take for granted that self protection activities reduce the riskiness of the final wealth distribution however as we argue below this is not the case if riskiness is defined as in rothschild and stiglitz 14 even if we use the variance as our risk measure we do not always reduce risk via self protection dionne and eeckhoudt suggest that these results might not be robust enough to extend to models that incorporate random initial wealth risk and state dependent preferences we show that the model seems to be very robust we also explain why self protection is not at all an exception to the long standing result of arrow 1 whereby more risk averse individuals undertake a lower

performance evaluation in stochastic environments using mean variance data envelopment analysis traditional data envelope analysis dea neglects uncertainty for the input output variables by treating the observations as if they were the true input output variables to select reference units for efficiency estimation and performance benchmarking in stochastic environments the traditional framework may include stochastically dominated reference units and exclude stochastically undominated ones to incorporate uncertainty for the input output variables in dea we propose a mean variance framework derived from the theory of stochastic dominance from that framework an extension to the traditional model is derived that prevents the selection of stochastically dominated reference units in addition within the mean variance approach variance restrictions can be specified that reduce the uncertainty for the performance of the evaluated unit relative to its reference unit

stochastic dominance and expected utility survey and analysis while stochastic dominance has been employed in various forms as early as 1932 it has only been since 1969 1970 that the notion has been developed and extensively employed in the area of economics finance agriculture statistics marketing and operations research in this survey the first second and third order stochastic dominance rules are discussed with an emphasis on the development in the area since the 1980s

pests and pesticides risk and risk aversion abstract theoretical and applied literature on risk in decision making for agricultural pest control is reviewed risk can affect pesticide decision making either because of risk aversion or because of its influence on expected profit it is concluded that risk does not necessarily lead to increased pesticide use by individual farmers uncertainty about some variables such as pest density and pest mortality does lead to higher optimal pesticide use under risk aversion however uncertainty about other important variables such as output price and yield leads to lower optimal levels of pesticide use neglect of these variables in most studies has led to the false assumption that pesticides are always risk reducing inputs furthermore there is evidence that in general the pesticide dosage which maximises expected profit is lower under risk than under certainty depending on the balance of forces to increase and decrease pesticide use under risk in many circumstances the net effect of risk on optimal decision making for pest control may be minimal the effect on risk of information about pest density and other variables as in integrated pest management programmes is discussed evidence on this issue is mixed a range of analytical techniques for analysing risk in pest control is reviewed throughout the paper gaps in the existing literature are identified

preference and veto thresholds in multicriteria analysis based on stochastic dominance abstract in the paper a discrete stochastic multiattribute problem is considered it is assumed that the performance probability distribution for each alternative on each attribute is known stochastic dominance approach is employed in comparing evaluations of alternatives with respect to attributes the concept of pseudo criteria is employed we assume that three situations can be considered when preferences are modeled with respect to single attribute strict preference weak preference and indifference preference threshold is used to distinguish situations of strict and weak preference electre iii distillation procedures are employed in construction of multiattribute ranking the approach could be an appropriate method e g in finance insurance and production process control

some recent developments in futures hedging the use of futures contracts as a hedging instrument has been the focus of much research at the theoretical level an optimal hedge strategy is traditionally based on the expected utility maximization paradigm a simplification of this paradigm leads to the minimum variance criterion although this paradigm is quite well accepted alternative approaches have been sought at the empirical level research on futures hedging has benefited from the recent developments in the econometrics literature much research has been done on improving the estimation of the optimal hedge ratio as more is known about the statistical properties of financial time series more sophisticated estimation methods are proposed in this survey we review some recent developments in futures hedging we delineate the theoretical underpinning of various methods and discuss the econometric implementation of the methods

exploring efficiency differences over time in the spanish banking industry abstract over the last 15 years the competitive conditions under which spanish banking firms operate have become much tighter deregulation has affected both banks and savings banks allowing them to expand geographically and to choose less regulation conditioned output mixes this paper analyzes how in these circumstances banking efficiency has been affected considering two specifications of output and analyzing the dynamics of the entire distribution not only mean and standard deviation results differ depending on the output definition but they show that in general efficiency scores exhibit dynamic patterns that only two moments of the distribution hardly capture in particular regardless of the output definition considered efficiency scores were more dispersed in 1985 and more concentrated in 1995 and there were substantial changes in firms efficiency relative positions as measured by transition probability matrices in addition the multi modality of the distributions has almost disappeared at the end of the period

risk management strategies via minimax portfolio optimization recent extreme economic developments nearing a worst case scenario motivate further examination of minimax linear programming approaches for portfolio optimization risk measured as the worst case return is employed and a portfolio from maximizing returns subject to a risk threshold is constructed minimax model properties are developed and parametric analysis of the risk threshold connects this model to expected value along a continuum revealing an efficient frontier segmenting investors by risk preference divergence of minimax model results from expected value is quantified and a set of possible prior distributions expressing a degree of knightian uncertainty corresponding to risk preference determined the minimax model will maximize return with respect to one of these prior distributions providing valuable insight regarding an investor s risk attitude and decision behavior linear programming models for financial firms to assist individual investors to hedge against losses by buying insurance and a model for designing variable annuities are proposed

efficiency of experimental security markets with insider information an application of rational expectations models the study reports on the ability of competing models of market information integration and dissemination to explain the behavior of simple laboratory markets for a one priced security returns to the security depended upon a randomly drawn state of nature some agents insiders whose identity was unknown to other agents knew the state before the markets opened with replication of market conditions the predictions of a fully revealing rational expectations model are relatively accurate prices adjusted immediately to near rational expectations prices profits of insiders were virtually indistinguishable from non insiders and efficiency levels converged to near 100 percent

the analysis of risky investment the paper extends the stochastic dominance analysis into a state contingent framework unlike the regular stochastic dominance rules in which case the dominance is defined over the states the efficiency analysis is applicable also for prospects that can be diversified between themselves or with other assets the paper presents definitions of the state contingent dominance rules theorems with respect to the properties of these rules comparisons between the regular stochastic dominance rules the state contingent dominance rules and demonstrations of some economic implications and uses of these rules

optimal hedging with a subjective view an empirical bayesian approach the standard optimal hedging model has been the preferred theoretical model of normative hedging behavior in empirical applications the model is often implemented with the parameter certainty equivalent pce procedure however the pce procedure completely ignores parameter estimation risk and subjective views we develop an empirical bayesian optimal hedging model that not only effectively accommodates parameter estimation risk but also provides hedgers with a theoretically intuitive yet quantitatively rigorous framework to blend their subjective views and a marketwide or firmwide consensus in determining optimal hedging positions ratios

migration growth distribution and welfare abstract in this note we argue that the inverted u curve of inequality is a technical derivative of the attributes of the conventional indices of inequality that these indices are inadequate measures of the change in welfare associated with the typical distributional consequences of rural to urban migration and that an explicit welfare judgment with respect to this process should and can be made

super efficiency infeasibility and zero data in dea lee et al 2011 and chen and liang 2011 develop a data envelopment analysis dea model to address the infeasibility issue in super efficiency models in this paper we point out that their model is feasible when input data are positive but can be infeasible when some of input is zero their model is modified so that the new super efficiency dea model is always feasible when data are non negative note that zero data can make the super efficiency model under constant returns to scale crs infeasible our discussion is based upon variable returns to scale vrs and can be applied to crs super efficiency models

diversification consistent data envelopment analysis with general deviation measures abstract we propose new efficiency tests which are based on traditional dea models and take into account portfolio diversification the goal is to identify the investment opportunities that perform well without specifying our attitude to risk we use general deviation measures as the inputs and return measures as the outputs we discuss the choice of the set of investment opportunities including portfolios with limited number of assets we compare the optimal values efficiency scores of all proposed tests leading to the relations between the sets of efficient opportunities strength of the tests is then discussed we test the efficiency of 25 world financial indices using new dea models with cvar deviation measures

dea frontier improvement and portfolio rebalancing an application of china mutual funds on considering sustainability information disclosure abstract data envelopment analysis dea has been a widely used methodology for evaluating the relative performance of portfolios extensive work has appeared for realizing the role of dea in the aspect of assessing portfolio performance and deriving the relative rankings however the role of providing realizable benchmarks is not fully explored in the existing literatures most importantly the dea based portfolio performance evaluation methods developed in the existing literatures can hardly provide support for fund managers in pursuing sustainability performance in this paper we first propose a dea frontier improvement approach under the mean variance framework this approach provides investor with a rebalancing strategy as well as an improved dea frontier which approximates the portfolio efficient frontier better than the traditional dea model does then this approach is extended to a general return risk framework our in sample simulation results verify the effectiveness of the proposed approach for a wide range of applications in addition the out of sample tests show that the rebalancing investment strategies can achieve higher sharpe ratios and sortino ratios than those of the original ones finally we apply the proposed approach to evaluate mutual fund performance in china with the consideration of sustainability information disclosure we construct a disclosure index to indicate the extent of sustainable information disclosure of each mutual fund the results show that the proposed approach provides not only investment recommendations but also references for constructing sustainable green funds

the gini coefficient structure and its application for the evaluation of regional balance development in china abstract the evaluation of balanced regional development should consider not only the economic and ecological benefits but also regional differences a nongrouped gini index is constructed based on a continuous distribution function to evaluate the regionally balanced development of the economy and the environment and the applicability of the method is analyzed given the data characteristics combining the difference in the regional economic base and ecological carrying capacity a multigroup overall gini index mgo gini with regional spatial heterogeneity is further developed along with its decomposition structure this work evaluates and analyses the regional balance in china s development with regard to regional industrial output energy consumption and pollution emissions from 2000 to 2015 using both the nongrouped and the mgo gini the results show that the gini index constructed in this paper can be well adapted to fat tailed data which is a typical feature of china s regional economic and ecological benefits data the regionally balanced development of china does not obviously promote industrial output whereas the regional balance of energy consumption shows the same upward trend when evaluated with both the nongrouped and the mgo gini from 2000 to 2015 in recent years after a period of improvement the regional balance of pollution emissions has experienced a downward trend there is disparity in cleaner production efficiency between regions of china as well as an upward trend in this disparity in recent years china s interregional balance has been enhanced in terms of energy consumption and pollution emissions considering regional spatial heterogeneity whereas the balance of economic output has been further reduced the balance in regional energy consumption plays a supporting role in balanced development among regions the imbalance within developed areas is the main source of regional economic output and energy consumption imbalances and the imbalance in developing areas is the main source of the regional pollution imbalance in china

information dissemination and the distribution of wealth evidence from experimental asset markets abstract we conduct 24 experimental asset markets to investigate the effects of differentially informed and experienced agents on information dissemination and the distribution of wealth in our markets private information is incomplete in that it reduces but does not eliminate state uncertainty private information is not fully disseminated even in markets with experienced traders informed agents exploit their informational advantage and earn greater profit than uninformed agents but only in markets with inexperienced traders lastly uninformed agents earn greater profit when some agents are informed but only in markets with experienced traders overall uninformed agents benefit from design specific trading experience

temporal risk and the nature of induced preferences abstract it has been known since the work of h markowitz portfolio selection efficient diversification of investments yale univ press 1959 and j mossin amer econ rev 59 1969 172 174 that even an individual whose underlying preferences satisfy the von neumann morgenstern axioms will not choose over delayed i e temporal risky prospects in a manner which can be modelled as expected utility maximizing since most economically important instances of risk taking insurance real investment agriculture career training involve delayed as opposed to immediately resolved risk the standard use of expected utility theory to model such decisions must be questioned in this paper the technique of generalized expected utility analysis m j machina econometrica 50 1982 277 323 and the theory of support functions r t rockafellar convex analysis princeton univ press 1970 are applied to exactly model and hence determine the nature of preferences over temporal risky prospects

a comparative analysis of water price support versus drought compensation scheme abstract this paper examines the preferred governmental intervention towards crops growing methods in semi arid regions these regions are characterized by an average amount of rain which is sufficient to grow the crop but it is also very risky the farmers attitude towards risk motivates the government to encourage them to shift to more profitable and riskier crop rotations the paper analyses two alternatives of which the government can work through drought compensation scheme dcs and water price support wps the semi arid region in israel is analyzed and policy conclusions are derived in particular it is shown that for different sub regions within the semi arid region different mechanisms are preferred by the government and the farmers sometimes these mechanisms coincide and sometimes they do not a welfare analyzes compares the different situations

negative conjectures and increased public good provision abstract a stochastic non nash model with negative conjectures is developed which yields a condition in which an individual increases voluntary public good provision relative to the nash solution

the british investor s gains from international portfolio investment abstract this paper analyses the effects of exchange controls on the ranking of british and overseas investments a method is developed by which the costs of such controls can be incorporated into return calculations it is shown that the adjustment of returns for exchange controls significantly alters the rankings of investments an additional aspect of the paper is to rank domestic and foreign investments by stochastic dominance and compare the derived rankings with mean variance again a significant differences in rankings is identifiable it is concluded that the exchange rate regime institutional exchange controls and the entire distribution of returns should be considered in ranking domestic and foreign investments

performance evaluation of portfolio insurance strategies using stochastic dominance criteria abstract this paper evaluates the performance of the stop loss synthetic put and constant proportion portfolio insurance techniques based on a block bootstrap simulation we consider not only traditional performance measures but also some recently developed measures that capture the non normality of the return distribution value at risk expected shortfall and the omega measure we compare them to the more comprehensive stochastic dominance criteria the impact of changing the rebalancing frequency and level of capital protection is examined we find that even though a buy and hold strategy generates higher average excess returns it does not stochastically dominate the portfolio insurance strategies nor vice versa our results indicate that a 100 floor value should be preferred to lower floor values and that daily rebalanced synthetic put and cppi strategies dominate their counterparts with less frequent rebalancing

a note on almost stochastic dominance abstract both the expected utility maximization and the hierarchy property are very important properties in stochastic dominance for almost stochastic dominance leshno and levy 2002 propose a definition and tzeng et al 2013 modified it to give another definition this note provides more information on the two definitions the former has the hierarchy property but not the expected utility maximization whereas the latter has the expected utility maximization but not the hierarchy property

a risk return model with risk and return measured as deviations from a target return two attribute risk and return models are very popular in the economics and finance literature for analyzing decisions under uncertainty their popularity stems primarily from the intuitive appeal of the dichotomy into risk and return and from the ease with which the concepts can be diagrammed in two dimensions the most commonly used risk return model is the mean variance model in which risk is measured as the variance and return by the mean of the probability distribution over outcomes the mean variance model has a number of shortcomings which are widely known but of particular concern here are the facts that 1 mean variance dominance is neither necessary nor sufficient for second degree stochastic dominance 2 unless the form of the probability distribution is restricted mean variance is consistent with von neumann morgenstern utility theory only if the utility function is quadratic and 3 as peter fishburn has noted

stochastic dominance and expected utility while stochastic dominance has been employed in various forms as early as 1932 it has only been since 1969 1970 that the notion has been developed and extensively employed in the area of economics

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

measures of technical efficiency abstract fare and lovell j econom theory 19 1978 150 162 suggest four properties that a measure of technical efficiency should satisfy the commonly employed debreu farrell measure fails three of them necessary and sufficient conditions for a measure to satisfy the four conditions are provided and recently proposed measures are analyzed in the light of this result also it is argued that the debreu farrell measure has several desirable properties when one takes account of 1 perhaps unknown market prices and the relationship between technical and economic efficiency and 2 its characterization as a measure of economic efficiency using the shadow prices implicit in the production technology

stochastic dominance analysis without the independence axiom we characterize the consistency of a large class of nonexpected utility preferences including mean variance preferences and prospect theory preferences with stochastic orders for example stochastic dominances of different degrees our characterization rests on a novel decision theoretic result that provides a behavioral interpretation of the set of all derivatives of the functional representing the decision maker s preferences as an illustration we consider in some detail prospect theory and choice acclimating preferences two popular models of reference dependence under risk and we show the incompatibility of loss aversion with prudence this paper was accepted by james smith decision analysis

data envelopment analysis models of investment funds abstract this paper develops theory missing in the sizable literature that uses data envelopment analysis to construct return risk ratios for investment funds it explores the production possibility set of the investment funds to identify an appropriate form of returns to scale it discusses what risk and return measures can justifiably be combined and how to deal with negative risks and identifies suitable sets of measures it identifies the problems of failing to deal with diversification and develops an iterative approximation procedure to deal with it it identifies relationships between diversification coherent measures of risk and stochastic dominance it shows how the iterative procedure makes a practical difference using monthly returns of 30 hedge funds over the same time period it discusses possible shortcomings of the procedure and offers directions for future research

the use of information system technology to develop tests on insider trading and asymmetric information issues related to insider trading remain popular research topics empirical studies using historical data are limited by two key factors 1 the inability to identify exactly who possesses inside information and 2 the inability to identify the accuracy of information possessed advances in information system technology enable us to overcome these problems in the laboratory using this technology we create a research shell to conduct experiments where we can identify the exact type and quality of information accessible by each trader our system includes the capability to monitor individual activities in accessing inside information the system can automatically impose a monetary penalty if random monitoring identifies a trader accessing inside information our experiments involve traders who receive access to inside information without initial knowledge of the quality of that information the results indicate that traders were able to outperform the market if penalties for being caught accessing such information were not included once penalties were included however no significant performance differences were observed finally in a second set of experiments involving a simplified market with infrequent electronic monitoring and low penalty amounts inside information seemed to be rapidly and effectively disseminated to traders possessing no inside information

stochastic dominance and uncertain price prospects since the seminal and simultaneous publications of hadar and russell 6 and hanoch and levy 8 there has been a virtual explosion of papers investigating implications of stochastic dominance rules for decisions under uncertainty dominance principles have important applications to portfolio choice capital budgeting and financial intermediation stochastic dominance can also be applied to investment and production decision problems under uncertainty in these areas both overall and marginal impacts of uncertainty have received wide attention 2 the emphasis in consumer welfare analysis under uncertainty has been on the ranking of different price prospects ranking of price prospects is more complicated than that of income prospects for two related reasons first due to differences in ordinal preferences among consumers the second degree stochastic dominance rule on price prospects does not yield a unanimous ranking among risk averse consumers thus waugh 17 massell 12 and samuelson 14 have focused on the ranking of price prospects for a single consumer or consumers with identical ordinal preferences second there is no a priori reason for income risk averse consumers to exhibit aversion to fair price risks specifically the indirect utility function of an income risk averse consumer is neither concave nor convex in prices indirect ways of comparing consumer welfare under alternative price prospects via expected consumer surplus expected compensating variation or expected equivalent variation have thus been investigated in the literature expected consumer surplus ecs has been particularly popular for ranking certain and uncertain price prospects 3 however turnovsky shalit and schmitz 16 showed that the ranking

mean risk analysis with enhanced behavioral content abstract we study a mean risk model derived from a behavioral theory of disappointment with multiple reference points one distinguishing feature of the risk measure is that it is based on mutual deviations of outcomes not deviations from a specific target we prove necessary and sufficient conditions for strict first and second order stochastic dominance and show that the model is in addition a convex risk measure the model allows for richer and behaviorally more plausible risk preference patterns than competing models with equal degrees of freedom including expected utility eu mean variance m v mean gini m g and models based on non additive probability weighting such as dual theory dt in asset allocation the model allows a decision maker to abstain from diversifying in a positive expected value risky asset if its performance does not meet a certain threshold and gradually invest beyond this threshold which appears more acceptable than the extreme solutions provided by either eu and m v always diversify or dt and m g always plunge in asset trading the model provides no trade intervals like dt and m g in some but not all situations an illustrative application to portfolio selection is presented the model can provide an improved criterion for mean risk analysis by injecting a new level of behavioral realism and flexibility while maintaining key normative properties

privileged traders and asset market efficiency a laboratory study the 39 experiments reported here examine the impact on trading profits and on market performance of awarding special trading privileges to some traders and not others in call market experiments the last mover and orderflow access privileges are both modestly prof itable and neither impairs market performance in continuous market experiments quicker access to orderflow information is quite profitable and more detailed access is possibly prof itable both privileges seem to enhance market performance slightly by contrast privileged marketmaking is extremely profitable and greatly impairs market performance

an empirical comparison of stochastic dominance among lognormal prospects l introduct ion the theory of portfolio selection and diversification developed by markowitz 22 and tobin 33 was based primarily on the criterion of meanvariance mv efficiency the objective was to select an efficient set of portfolios from which every risk averter will choose the optimal portfolio which maximizes his expected utility the mv criterion is the appropriate rule either for the case in which the utility function is quadratic or if the returns are normally distributed and risk aversion is assumed two approaches to the choice among risky alternatives that have been developed independently over the past two decades are the geometric mean criterion gm and the stochastic dominance sd decision model both can be justified by the expected utility hypothesis with the geometric mean cri terion following as a result of the assumption that the decision maker has a logarithmic utility function and the stochastic dominance models requiring the less restrictive assumption of signs of the first few derivatives of the decision maker s utility function this paper compares the concept of ordinary stochastic dominance to stochastic dominance of the lognormally distributed prospects from an empirical point of view further 1ight is also shed on the issue of applying the markowitz tobin mean variance rule