How does beta explain stochastic dominance efficiency?

Haim Shalit, Shlomo Yitzhaki

Research output: Contribution to journalArticlepeer-review

13 Scopus citations


Stochastic dominance rules provide necessary and sufficient conditions for characterizing efficient portfolios that suit all expected utility maximizers. For the finance practitioner, though, these conditions are not easy to apply or interpret. Portfolio selection models like the mean-variance model offer intuitive investment rules that are easy to understand, as they are based on parameters of risk and return. We present stochastic dominance rules for portfolio choices that can be interpreted in terms of simple financial concepts of systematic risk and mean return. Stochastic dominance is expressed in terms of Lorenz curves, and systematic risk is expressed in terms of Gini. To accommodate for risk aversion differentials across investors, we expand the conditions using the extended Gini.

Original languageEnglish
Pages (from-to)431-444
Number of pages14
JournalReview of Quantitative Finance and Accounting
Issue number4
StatePublished - 15 Feb 2010


  • Extended Gini
  • Gini
  • Lorenz curves
  • Marginal conditional stochastic dominance
  • Systematic risk


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