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The Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD)

Abstract for:

Bootstrap Tests of Stochastic Dominance with Asymptotic Similarity on the Boundary

Oliver Linton, Kyungchul Song, Yoon-Jae Whang, February 2008
Paper No' EM/2008/527: | Full paper (pdf)
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Keywords: Set estimation; Size of test; Unbiasedness; Similarity; Bootstrap; Subsampling.

JEL Classification: C12; C14; C52

Is hard copy/paper copy available? YES - Paper Copy Still In Print.
This Paper is published under the following series: Econometrics
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Abstract:

We propose a new method of testing stochastic dominance which improves on existing tests based on bootstrap or subsampling. Our test requires estimation of the contact sets between the marginal distributions. Our tests have asymptotic sizes that are exactly equal to the nominal level uniformly over the boundary points of the null hypothesis and are therefore valid over the whole null hy- pothesis. We also allow the prospects to be indexed by in…nite as well as …nite dimensional unknown parameters, so that the variables may be residuals from nonparametric and semiparametric models. Our simulation results show that our tests are indeed more powerful than the existing subsampling and recentered bootstrap.