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Authors: IOAN ALIN NISTOR, MARIA-LENUTA CIUPAC-ULICI, MIRCEA-CRISTIAN GHERMAN, DANIELA-GEORGETA BEJU.
DOI: 10.24193/subbnegotia.2019.4.01
Published Online: 2019-12-30
Published Print: 2019-12-30
pp. 7-26
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Stochastic dominance is a method that refers to a set of relations, which may hold between a specific pair of distributions. However, the concept can be applied in many domains, but in particular in financial economic areas, where the considered distributions are usually those of random returns to different financial assets. The aim of this paper is to provide an implementation of a stochastic dominance algorithm that establish which of more risky indices is preferred more by investors who have an aversive risk profile. The study is performed on FTSE indices. The focus is to emphasis the imbalance between FTSE regional indices and FTSE sectorial indices. The analyzed period for regional indices is April 3, 2000 –September 12, 2014. As regards the sector indices, the analyzed period is January 3, 1994 – September 12, 2014.Its relevance consist in that, it offers a different perspective for investors when choosing between different financial assets. This approach together with Meyer algorithm has been proved that it is a useful tool in risk aversion analysis.
Keywords: stochastic dominance, utility function, FTSE index.
JEL Classification: C73, D9, D53
