Central Moments, Stochastic Dominance and Expected Utility

11 Pages Posted: 9 Oct 2016

See all articles by Raymond Honfu Chan

Raymond Honfu Chan

City University of Hong Kong

Nikolai Sheung-Chi Chow

Australian National University (ANU) - Research School of Economics

Wing-Keung Wong

Asia University, Department of Finance

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

Suggested Citation

Chan, Raymond Honfu and Chow, Sheung-Chi and Wong, Wing-Keung, Central Moments, Stochastic Dominance and Expected Utility (October 7, 2016). Available at SSRN: https://ssrn.com/abstract=2849715 or http://dx.doi.org/10.2139/ssrn.2849715

Raymond Honfu Chan

City University of Hong Kong ( email )

Tat Chee Avenue
Hong Kong
Hong Kong

Sheung-Chi Chow

Australian National University (ANU) - Research School of Economics ( email )

Canberra
Australia

Wing-Keung Wong (Contact Author)

Asia University, Department of Finance ( email )

Taiwan
Taiwan

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