Stochastic dominance enhanced portfolios - empirical evidence

Stochastic dominance is a relation between two random variables allowing to compare random returns of two portfolios. Based on the type of stochastic dominance, a decision maker can use the first-order, the second-order, the third-order stochastic dominance criteria or some more general rules. In this paper, we analyze the optimal portfolios of stochastic dominance constrained problems for maximizing mean returns objective and various types of stochastic dominance relations (the first-order, the second-order, the third-order). Especially, we focus on the risk-reward in-sample performance of the portfolio returns. We consider monthly returns of 25 Fama-French portfolios (base assets) from two periods: during crises period (2007-2010) and after crises period (2011-2014). We compare the results of the during crises period with that of the after crises period.