Prague Economic Papers 2018, 27(2):169-195 | DOI: 10.18267/j.pep.649

SSD Efficiency at Multiple Data Frequencies: Application on the OECD Countries

Umut Ugurlu1, Oktay Tas1, Celal Barkan Guran1, Aysun Guran2
1 Management Engineering Department, Istanbul Technical University, Turkey
2 Computer Engineering Department, Dogus University, Turkey

The second order stochastic dominance (SSD) has become exceedingly popular in recent years,
due to its ability to determine the dominance of one asset over another for all risk-averse investors
without a strict requirement in asset distribution. In this study, 33 OECD country indexes and their
enriched set of assets, which consists of some combinations of these indexes, are investigated
and compared between 2007 and 2015 by utilizing pairwise SSD comparisons, with different data
frequencies, such as daily, weekly, monthly and quarterly. This paper contributes to the literature
in three points: Firstly, a serious portion of the best performing OECD countries has the lowest GDP
(PPP) per capita level. Secondly, the SSD efficient set depends on data frequency. Thirdly, when
the data frequency is lowered, the difference between two SSD pairwise efficiency tests decreases.

Keywords: second order stochastic dominance, SSD pairwise efficiency, pairwise comparisons,data frequency, OECD indexes
JEL classification: C61, G11, G14

Published: April 1, 2018  Show citation

ACS AIP APA ASA Harvard Chicago IEEE ISO690 MLA NLM Turabian Vancouver
Ugurlu, U., Tas, O., Barkan Guran, C., & Guran, A. (2018). SSD Efficiency at Multiple Data Frequencies: Application on the OECD Countries. Prague Economic Papers, 27(2), 169-195. doi: 10.18267/j.pep.649
Download citation
  • BibTeX (.bib)
  • Bookends (.ris)
  • EasyBib (.ris)
  • EndNote (.enw)
  • EndNote 8 (.xml)
  • ISI WoS (.isi)
  • Medlars (.medlars)
  • Mendeley (.ris)
  • MODS (.xml)
  • Papers (.ris)
  • RefWorks (.txt)
  • RefManager (.ris)
  • RIS (.ris)
  • MS Word (.xml)
  • Zotero (.ris)
    • Open full article

    References

    1. Abyankhar, A., Ho, K. Y., Zhao, H. (2005). Long-Run Post-Merger Stock Performance of UK Acquiring Firms: A Stochastic Dominance Perspective. Applied Financial Economics, 15(10), 679-690, https://doi.org/10.1080/09603100500065305 Go to original source...
    2. Al-Khazali, O., Lean, H. H., Samet, A. (2014). Do Islamic Stock Indexes Outperform Conventional Stock Indexes? A Stochastic Dominance Approach. Pacific-Basin Finance Journal, 28, 29-46, https://doi.org/10.1016/j.pacfin.2013.09.003 Go to original source...
    3. Best, R. J., Best, R. W., Yoder, J. A. (2000). Value Stocks and Market Efficiency. Journal of Economics and Finance, 24(1), Spring 2000, 28-35, https://doi.org/10.1007/BF02759693 Go to original source...
    4. Branda, M., Kopa, M. (2012). DEA-Risk Efficiency and Stochastic Dominance Efficiency of Stock Indexes. Czech Journal of Economics and Finance, 62(2), 106-124.
    5. Branda, M., Kopa, M. (2014). On Relations between DEA-Risk Models and Stochastic Dominance Efficiency Tests. Central European Journal of Operations Research, 22(1), 13-35, https://doi.org/10.1007/s10100-012-0283-2 Go to original source...
    6. Branda, M., Kopa, M. (2016). DEA Models Equivalent to General N-th Order Stochastic Dominance Efficiency Tests. Operations Research Letters, 44(2), 285-289, https://doi.org/10.1016/j.orl.2016.02.007 Go to original source...
    7. De Giorgi, E., Post, T. (2008). Second-Order Stochastic Dominance, Reward-Risk Portfolio Selection, and the CAPM. Journal of Financial and Quantitative Analysis, 43(2), June 2008, 525-546, https://doi.org/ http://dx.doi.org/10.1017/S0022109000003616 Go to original source...
    8. Dupacova, J., Kopa, M. (2012). Robustness in Stochastic Programs with Risk Constraints. Annals of Operations Research, 200(1), 55-74, https://doi.org/10.1007/s10479-010-0824-9 Go to original source...
    9. Elton, E. J., Gruber, M. J. (1997). Modern Portfolio Theory, 1950 to Date. Journal of Banking & Finance, 21(11-12), 1743-1759, https://doi.org/10.1016/S0378-4266(97)00048-4 Go to original source...
    10. Fabian, I. C., Mitra, G., Roman, D., Zverovich, V. (2011). An Enhanced Model for Portfolio Choice with SSD Criteria: a Constructive Approach. Quantitative Finance, 11(10), October 2011, 1525-1534, https://doi.org/10.1080/1469768090349360 Go to original source...
    11. Fong, W. M. (2009). Speculative Trading and Stock Returns: A Stochastic Dominance Analysis of the Chinese A-Share Market. Journal of International Financial Markets, Institutions & Money, 19(4), 712-727, https://doi.org/10.1016/j.intfin.2008.12.003 Go to original source...
    12. Grechuk, B. (2014). A Simple SSD-Efficiency Test. Optimization Letters, 8(7), 2135-2143, https://doi.org/10.1007/s11590-013-0720-8 Go to original source...
    13. Güran, C. B., Tas, O., Güran, A. (2013). Second Order Stochastic Dominance Efficiency Test of a Portfolio - An Empirical Study on the BİST-30 Index. Paper presented at the IISRO Conference Dubai.
    14. Güran, C. B., Tas, O. (2015). Making Second Order Stochastic Dominance İnefficient Mean Variance Portfolio Efficient: Application in Turkish BIST-30 Index. Iktisat Isletme ve Finans, 30(348), 69-94, https://doi.org/10.3848/iif.2015.348.4338 Go to original source...
    15. Hanoch, G., Levy, H. (1969). The Efficiency Analysis of Choices Involving Risk. Review of Economic Studies, 36(3), 335-346, https://doi.org/10.2307/2296431 Go to original source...
    16. Hodder, J. E., Jackwerth, J. C., Kolokolova, O. (2015). Improved Portfolio Choice Using Second- -Order Stochastic Dominance. Review of Finance, 19(4), 1623-1647, https://doi.org/10.1093/rof/rfu025 Go to original source...
    17. Jensen, M. C. (1968). The Performance of Mutual Funds in the Period 1945-1964. Journal of Finance, 23(2), 389-416, https://doi.org/10.1111/j.1540-6261.1968.tb00815.x Go to original source...
    18. Kankova, V., Houda, M. (2015). Thin and Heavy Tails in Stochastic Programming. Kybernetika, 51(3), 433-456, https://doi.org/10.14736/kyb-2015-3-0433 Go to original source...
    19. Kankova V., Omelchenko, V. (2015). Empirical Estimates in Stochastic Programs with Probability and Second Order Dominance Constraints. Acta Mathematica Universitatis Comenianae. 84(2), 267-281.
    20. Kopa, M., Chovanec, P. (2008). A Second-Order Stochastic Dominance Portfolio Efficiency Measure. Kybernetika, 44(2), 243-258.
    21. Kopa, M., Post, T. (2009). A Portfolio Optimality Test Based on the First-Order Stochastic Dominance Criterion. Journal of Financial and Quantitative Analysis, 44(5), 1103-1124, https://doi.org/10.1017/S0022109009990251 Go to original source...
    22. Kopa, M., Post, T. (2015). A General Test for SSD Portfolio Efficiency. OR Spectrum, 37(3), 703-734, https://doi.org/10.1007/s00291-014-0373-8 Go to original source...
    23. Kopa, M., Tichy, T. (2012). Concordance Measures and Second Order Stochastic Dominance - Portfolio Efficiency Analysis. E+M Economics&Management, 4, 110-120.
    24. Kopa, M., Tichy, T. (2014). Comparison of Mean-Risk Efficient Portfolios in Asia-Pacific Capital Markets. Emerging Markets Finance and Trade, 50(1), 226-240, https://doi.org/10.2753/REE1540-496X500113 Go to original source...
    25. Kraus, A., Litzenberger, R. (1976). Skewness Preference and the Valuation of Risky Assets. Journal of Finance, 31(4), 1085-1099, https://doi.org/10.2307/2326275 Go to original source...
    26. Kuosmanen, T. (2004). Efficient Diversification According to Stochastic Dominance Criteria. Management Science, 50(10), 1390-1406, http://doi.org/10.1287/mnsc.1040.0284 Go to original source...
    27. Levy, Haim. (2006). Stocastic Dominance: Investment Decision Making under Uncertainty. Second Edition. New York: Springer Science. ISBN 978-1-4419-3983-8.
    28. Linton, O., Post, T., Whang, Y. J. (2014). Testing for the Stochastic Dominance Efficiency of a Given Portfolio. Econometrics Journal, 17(2), 59-74, http://doi.org/10.1111/ectj.12016 Go to original source...
    29. Lizyayev, A. (2012). Stochastic Dominance Efficiency Analysis of Diversified Portfolios: Classification, Comparison and Refinements. Annals of Operations Research, 196(1), 391-410, http://doi.org/10.1007/s10479-012-1123-4 Go to original source...
    30. Markowitz, H. M. (1952). Portfolio Selection. Journal of Finance, 7(1), 77-91, http://doi.org/10.2307/2975974 Go to original source...
    31. Post, T. (2003). Empirical Tests for Stochastic Dominance Efficiency. Journal of Finance, 58(5), 1905-1932, http://doi.org/10.1111/1540-6261.00592 Go to original source...
    32. Post, T. (2008). On the Dual Test for SSD Efficiency, with an Application to Momentum Investment Strategies. European Journal of Operational Research, 185(3), 1564-1573, http://doi.org/10.1016/j.ejor.2006.08.010 Go to original source...
    33. Post, T., Fang, Y., Kopa, M. (2015). Linear Tests for DARA Stochastic Dominance. Management Science, 61(7), 1615-1629, http://doi.org/10.1287/mnsc.2014.1960 Go to original source...
    34. Post, T., Kopa, M. (2013). General Linear Formulations of Stochastic Dominance Criteria. European Journal of Operational Research, 230(2), 321-332, http://doi.org/10.1016/j.ejor.2013.04.015 Go to original source...
    35. Post, T., Van Vliet, P., Levy, H. (2008). Risk Aversion and Skewness Preference. Journal of Banking & Finance, 32(7), 1178-1187, http://doi.org/10.1016/j.jbankfin.2006.02.008 Go to original source...
    36. Roman, D., Darby-Dowman, K., Mitra, G. (2006). Portfolio Construction Based on Stochastic Dominance and Target Return Distributions. Mathematical Programming, Ser. B, 108(2-3), 541-569, http://doi.org/10.1007/s10107-006-0722-8 Go to original source...
    37. Sharpe, W. F. (1966). Mutual Fund Performance. Journal of Business, 39(1), 119-138, http://doi.org/10.1086/294846 Go to original source...
    38. Sharpe, W. F. (1994). The Sharpe Ratio. The Journal of Portfolio Management, 21(1), 49-58, https://doi.org/10.3905/jpm.1994.409501 Go to original source...
    39. Tas, O., Barjiough, F. M., Ugurlu, U. (2015). A Test of Second-Order Stochastic Dominance with Different Weighting Methods: Evidence from BIST-30 and DJIA. Journal of Business Economics and Finance, 4(4), 723-731, http://doi.org/10.17261/Pressacademia.2015414538 Go to original source...
    40. Treynor, J. L. (1966). How to Rate Management Investment Funds. Harvard Business Review, 43(1), January-February, 63-75.

    This is an open access article distributed under the terms of the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License (CC BY NC ND 4.0), which permits non-comercial use, distribution, and reproduction in any medium, provided the original publication is properly cited. No use, distribution or reproduction is permitted which does not comply with these terms.


    Return to the content