Aggregate investor preferences and beliefs in stock market: A stochastic dominance analysis

作者：Fang, Yi^*

来源：Journal of Empirical Finance, 2012, 19(4): 528-547.

DOI：10.1016/j.jempfin.2012.04.008

• Stock market efficiency
• Bootstrap
• Stochastic dominance
• Prospect theory
• Loss aversion
• Skewness preference

This paper analyzes whether the market portfolio is efficiently related to benchmark portfolios formed on size, value, momentum and reversal with various utility theories by using stochastic dominance criteria. The results support the prospect theory including assumption of loss aversion at monthly and yearly horizons, which indicates the market utility is S-shaped, and steeper for losses than for gains. And, the findings do not provide convincing evidence for positive skewness preference. Therefore, it should probe into asset pricing model and financial puzzles by prospect theory preferences. It may thus be difficult for the market to benefit from the asset through its features on skewness or other higher order central moment. We also develop several bootstrap procedures with favorable properties in statistical size and power for testing stochastic dominance efficiency.

• 出版日期2012-9
• 单位吉林大学