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| Author: | Vinod, H.D. |
| Title: | Ranking mutual funds using unconventional utility theory and stochastic dominance |
| Journal: | Journal of Empirical Finance
2004 : JUN, VOL. 11:3, p. 353-377 |
| Index terms: | Financial markets Portfolio selection Unit trusts Models Theories |
| Language: | eng |
| Abstract: | This paper makes the choice btw. mutual funds realistic and rigorous by incorporating (i) unconventional non-expected utility theories implying four desirable properties (4DPs) of utility functions, and (ii) the fourth-order stochastic dominance (4SD). Kimball's (Econometrica 58, (1990) diminishing prudence is shown to need 4SD. A new weighting incorporates 4DPs into various criteria including the Sharpe ratio. This paper uses 1.281 mutual funds rated with 1-5 stars by Morningstar and proposes a new cumulative 4SD measure with superiour properties for statistical inference. An appendix describes a new maximum entropy (ME) bootstrap for dependent time series. |
SCIMA