Journal of Financial and Quantitative Analysis · 1973 · 87 citations · 0 references
BusinessEconomicsFinanceFinancial EconomicsInvestment ManagementPortfolio ManagementPortfolio OptimizationPortfolio SelectionPortfolio TheoryRisk AversionRisk PreferencesStochastic DominanceAsset PortfoliosMarkowitz Portfolio TheoryMean-variance Portfolio SelectionOptimal Portfolio ChoicePortfolio Choice TheoryPortfolio Selection Under Stochastic DominanceSecond-order Stochastic DominanceStochastic Dominance Analysis
An important issue in the financial literature concerns the conflict between the stochastic dominance (SD) and the mean-variance (EV) methods of choosing optimal portfolios of risky assets. Much of the recent theoretical and empirical work in portfolio analysis has been devoted to the extension and testing of the Markowitz two-moment model, in which it is assumed that either (a) decision makers have quadratic utility functions with negative second derivatives or (b) the probability functions are from some appropriate two-parameter family and the investor is risk averse.