New results and tests for stochastic dominance between linear combinations
Fuente:
arXiv
Gespeichert in:
| Hauptverfasser: | , |
|---|---|
| Format: | Preprint |
| Veröffentlicht: |
2026
|
| Schlagworte: | |
| Online-Zugang: | |
| Tags: |
Tag hinzufügen
Keine Tags, Fügen Sie den ersten Tag hinzu!
|
| _version_ | 1866918379620663296 |
|---|---|
| author | Lando, Tommaso Oliveira, Paulo Eduardo |
| author_facet | Lando, Tommaso Oliveira, Paulo Eduardo |
| contents | Convex combinations of i.i.d. random variables without a finite mean can behave in a strikingly different way from the finite-mean case: as the weight vector becomes more balanced, the resulting combination may become stochastically larger, rather than less dispersed. Existing results establish stochastic dominance between pairs of linear combinations-or between a convex combination and the underlying variable-under shape restrictions on the distribution and structural assumptions on the weights. We expand the class for which the general result can be derived. Nonetheless, two practical limitations remain: (i) the sufficient conditions vary across results, and (ii) being non-necessary, they exclude many relevant configurations. Moreover, under a statistical perspective, where the true distribution of the data is assumed to be unknown, these conditions cannot be checked. Motivated by this gap, we develop nonparametric procedures to test whether two linear combinations are stochastically ordered. We propose two complementary approaches: a least-favorable calibration and a bootstrap-based method.We show that both tests control size asymptotically under the null of stochastic dominance and are consistent against alternatives of non-dominance. Monte Carlo experiments illustrate the finite-sample performance of the proposed procedures across a range of models and weight configurations. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2603_07842 |
| institution | arXiv |
| publishDate | 2026 |
| record_format | arxiv |
| spellingShingle | New results and tests for stochastic dominance between linear combinations Lando, Tommaso Oliveira, Paulo Eduardo Methodology 62G10, 60E15 G.3 Convex combinations of i.i.d. random variables without a finite mean can behave in a strikingly different way from the finite-mean case: as the weight vector becomes more balanced, the resulting combination may become stochastically larger, rather than less dispersed. Existing results establish stochastic dominance between pairs of linear combinations-or between a convex combination and the underlying variable-under shape restrictions on the distribution and structural assumptions on the weights. We expand the class for which the general result can be derived. Nonetheless, two practical limitations remain: (i) the sufficient conditions vary across results, and (ii) being non-necessary, they exclude many relevant configurations. Moreover, under a statistical perspective, where the true distribution of the data is assumed to be unknown, these conditions cannot be checked. Motivated by this gap, we develop nonparametric procedures to test whether two linear combinations are stochastically ordered. We propose two complementary approaches: a least-favorable calibration and a bootstrap-based method.We show that both tests control size asymptotically under the null of stochastic dominance and are consistent against alternatives of non-dominance. Monte Carlo experiments illustrate the finite-sample performance of the proposed procedures across a range of models and weight configurations. |
| title | New results and tests for stochastic dominance between linear combinations |
| topic | Methodology 62G10, 60E15 G.3 |
| url | https://arxiv.org/abs/2603.07842 |