Central Moments, Stochastic Dominance and Expected Utility
11 Pages Posted: 9 Oct 2016
Date Written: October 7, 2016
Abstract
In this paper, we develop some theories related to relationships between central moments, stochastic dominance (SD) and expected utility. The first part of our discussion focus on the relationship between central moments, different order integrals and stochastic dominance as well as relationship between central moments, different order reversed integrals and risk seeking stochastic dominance. The second part of our discussion focus on the relationship between central moments and different form of expected utility. Part of our results could be viewed as a generalization of theorems in Chan, et al. (2012). The results in our paper can be used to develop the relationship between moments and prospect SD (PSD) and Markowitz SD (MSD).
Keywords: higher order stochastic dominance, higher order central moments, expected-utility maximization, risk aversion, risk seeking, investment behaviors
JEL Classification: C00, G11
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