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Is the index efficient?: A worldwide tour with stochastic dominance

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Is the index efficient? A worldwide tour with stochastic dominance. / Kolokolova, Olga; Le Courtois, Olivier; Xu, Xia.
In: Journal of Financial Markets, Vol. 59, No. Part B, 100660, 30.06.2022.

Research output: Contribution to Journal/Magazine › Journal article › peer-review

Harvard

Kolokolova, O, Le Courtois, O & Xu, X 2022, 'Is the index efficient? A worldwide tour with stochastic dominance', Journal of Financial Markets, vol. 59, no. Part B, 100660. https://doi.org/10.1016/j.finmar.2021.100660

APA

Kolokolova, O., Le Courtois, O., & Xu, X. (2022). Is the index efficient? A worldwide tour with stochastic dominance. Journal of Financial Markets, 59(Part B), Article 100660. https://doi.org/10.1016/j.finmar.2021.100660

Vancouver

Kolokolova O, Le Courtois O, Xu X. Is the index efficient? A worldwide tour with stochastic dominance. Journal of Financial Markets. 2022 Jun 30;59(Part B):100660. Epub 2022 May 27. doi: 10.1016/j.finmar.2021.100660

Author

Kolokolova, Olga ; Le Courtois, Olivier ; Xu, Xia. / Is the index efficient? A worldwide tour with stochastic dominance. In: Journal of Financial Markets. 2022 ; Vol. 59, No. Part B.

Bibtex

@article{00d12cf8c54c4945bf9e0779269d65ec,
title = "Is the index efficient?: A worldwide tour with stochastic dominance",
abstract = "We conduct a broad study of stochastic dominance efficiency on financial markets. We show that in the long run the vast majority of 17 equity market indices across the globe are inefficient at order two relative to their industry components. In the short run, the past stochastic dominance relation between the index and sub-indices predicts future dominance. Trading rules accounting for the predictability of stochastic dominance improve the out-of-sample certainty equivalents of risk-averse investors. The gains are especially pronounced for European and developing markets, while no consistent outperformance of alternative strategies is found for the S&P 100 and Nikkei 225 indices.",
keywords = "Diversification, Industry sub-indices, Market index, Optimal portfolios, Stochastic dominance",
author = "Olga Kolokolova and {Le Courtois}, Olivier and Xia Xu",
note = "Author was employed at another UK HEI at the time of submission and was deposited at University of Manchester Repository, see link https://research.manchester.ac.uk/en/publications/is-the-index-efficient-a-worldwide-tour-with-stochastic-dominance",
year = "2022",
month = jun,
day = "30",
doi = "10.1016/j.finmar.2021.100660",
language = "English",
volume = "59",
journal = "Journal of Financial Markets",
issn = "1386-4181",
publisher = "Elsevier",
number = "Part B",

}

RIS

TY - JOUR

T1 - Is the index efficient?

T2 - A worldwide tour with stochastic dominance

AU - Kolokolova, Olga

AU - Le Courtois, Olivier

AU - Xu, Xia

N1 - Author was employed at another UK HEI at the time of submission and was deposited at University of Manchester Repository, see link https://research.manchester.ac.uk/en/publications/is-the-index-efficient-a-worldwide-tour-with-stochastic-dominance

PY - 2022/6/30

Y1 - 2022/6/30

N2 - We conduct a broad study of stochastic dominance efficiency on financial markets. We show that in the long run the vast majority of 17 equity market indices across the globe are inefficient at order two relative to their industry components. In the short run, the past stochastic dominance relation between the index and sub-indices predicts future dominance. Trading rules accounting for the predictability of stochastic dominance improve the out-of-sample certainty equivalents of risk-averse investors. The gains are especially pronounced for European and developing markets, while no consistent outperformance of alternative strategies is found for the S&P 100 and Nikkei 225 indices.

AB - We conduct a broad study of stochastic dominance efficiency on financial markets. We show that in the long run the vast majority of 17 equity market indices across the globe are inefficient at order two relative to their industry components. In the short run, the past stochastic dominance relation between the index and sub-indices predicts future dominance. Trading rules accounting for the predictability of stochastic dominance improve the out-of-sample certainty equivalents of risk-averse investors. The gains are especially pronounced for European and developing markets, while no consistent outperformance of alternative strategies is found for the S&P 100 and Nikkei 225 indices.

KW - Diversification

KW - Industry sub-indices

KW - Market index

KW - Optimal portfolios

KW - Stochastic dominance

U2 - 10.1016/j.finmar.2021.100660

DO - 10.1016/j.finmar.2021.100660

M3 - Journal article

AN - SCOPUS:85110212673

VL - 59

JO - Journal of Financial Markets

JF - Journal of Financial Markets

SN - 1386-4181

IS - Part B

M1 - 100660

ER -