Improved Portfolio Choice Using Second-Order Stochastic Dominance

Olga Kolokolova, Jens Carsten Jackwerth, James E Hodder

Research output: Contribution to journalArticlepeer-review


Constructing portfolios based on second-order stochastic dominance (SSD) is theoretically attractive since all risk-averse investors would prefer a dominating portfolio. However, choosing among SSD efficient portfolios is a challenge without an obvious ranking metric. We explore particular choices based on Kuosmanen (2004) plus Kopa and Post (2011), comparing their performance to other SSD-related strategies and to standard portfolio choice approaches. These SSD-related choices outperform portfolios chosen based on their Sharpe ratio, information ratio, or using equal weights. Portfolios based on minimum variance that also match the benchmark’s mean return perform on a par with the SSD-related choices.
Original languageEnglish
Pages (from-to)1623–1647
JournalReview of Finance (Print)
Issue number4
Publication statusPublished - 13 Jun 2014


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