Stochastic dominance analysis of CTA funds

Stochastic dominance analysis of CTA funds In this paper, we employ the stochastic dominance (SD) approach to rank the performance of commodity trading advisors (CTA) funds. An advantage of this approach is that it alleviates the problems that can arise if CTA returns are not normally distributed by utilizing the entire returns distribution. We find both first-order and higher-order SD relationships amongst the CTA funds and conclude that investors are better off investing in the first-order dominant funds to maximize their expected utilities and expected wealth. However, for higher-order dominant CTAs, risk-averse investors can maximize their expected utilities but not their expected wealth. In addition to the advantages of the SD approach in the case of non-normal returns, the paper concludes that the approach is more appropriate compared with traditional approaches as a filter in the CTA selection process as it provides meaningful economic interpretation of the results. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Stochastic dominance analysis of CTA funds

Loading next page...
 
/lp/springer_journal/stochastic-dominance-analysis-of-cta-funds-WygF4UqYBL
Publisher
Springer US
Copyright
Copyright © 2012 by Springer Science+Business Media, LLC
Subject
Economics / Management Science; Finance/Investment/Banking; Accounting/Auditing; Econometrics; Operations Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1007/s11156-012-0284-1
Publisher site
See Article on Publisher Site

Abstract

In this paper, we employ the stochastic dominance (SD) approach to rank the performance of commodity trading advisors (CTA) funds. An advantage of this approach is that it alleviates the problems that can arise if CTA returns are not normally distributed by utilizing the entire returns distribution. We find both first-order and higher-order SD relationships amongst the CTA funds and conclude that investors are better off investing in the first-order dominant funds to maximize their expected utilities and expected wealth. However, for higher-order dominant CTAs, risk-averse investors can maximize their expected utilities but not their expected wealth. In addition to the advantages of the SD approach in the case of non-normal returns, the paper concludes that the approach is more appropriate compared with traditional approaches as a filter in the CTA selection process as it provides meaningful economic interpretation of the results.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Apr 3, 2012

References

  • Non-normality and risk in developing Asian markets
    Alles, L; Murray, L
  • Toward an empirical analysis of polarization
    Anderson, G
  • Test statistics for prospect and Markowitz stochastic dominances with applications
    Bai, ZD; Li, H; Liu, HX; Wong, WK
  • Does post-earnings-announcement drift in stock prices reflect a market inefficiency? A stochastic dominance approach
    Bernard, VL; Seyhun, HN
  • The relationship between arbitrage and first order stochastic dominance
    Jarrow, R
  • Risk the pricing of capital assets and the evaluation of investment portfolios
    Jensen, MC
  • A performance comparison between cross-sectional stochastic dominance and traditional event study methodologies
    Larsen, GA; Resnick, BG

You’re reading a free preview. Subscribe to read the entire article.


DeepDyve is your
personal research library

It’s your single place to instantly
discover and read the research
that matters to you.

Enjoy affordable access to
over 12 million articles from more than
10,000 peer-reviewed journals.

All for just $49/month

Explore the DeepDyve Library

Unlimited reading

Read as many articles as you need. Full articles with original layout, charts and figures. Read online, from anywhere.

Stay up to date

Keep up with your field with Personalized Recommendations and Follow Journals to get automatic updates.

Organize your research

It’s easy to organize your research with our built-in tools.

Your journals are on DeepDyve

Read from thousands of the leading scholarly journals from SpringerNature, Elsevier, Wiley-Blackwell, Oxford University Press and more.

All the latest content is available, no embargo periods.

See the journals in your area

DeepDyve Freelancer

DeepDyve Pro

Price
FREE
$49/month

$360/year
Save searches from
Google Scholar,
PubMed
Create lists to
organize your research
Export lists, citations
Read DeepDyve articles
Abstract access only
Unlimited access to over
18 million full-text articles
Print
20 pages/month
PDF Discount
20% off