Aggregate investor preferences and beliefs: A comment |
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| Affiliation: | 1. Koç University''s Graduate School of Business, Rumelifeneri Yolu, Sariyer, Istanbul 34450, Turkey;2. Charles University in Prague, Faculty of Mathematics and Physics, Department of Probability and Mathematical Statistics, Prague, Czech Republic;1. Danmarks Nationalbank, Government Debt Management, Havnegade 5, DK-1093 Copenhagen, Denmark;2. European Central Bank, Directorate General Economics, Capital Markets and Financial Structure Division, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany;3. Karlsruhe Institute of Technology, Institute of Operations Research, Schlossbezirk 14, 76131 Karlsruhe, Germany |
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| Abstract: | A recent study in this journal presents encouraging results of a daunting simulation analysis of the statistical properties of a centered bootstrap approach to stochastic dominance efficiency analysis. However, by relying on the first-order optimality condition in a situation where multiple optima may occur, the empirical analysis draws the questionable conclusion that some of the toughest data sets in empirical asset pricing can be rationalized by the representative investor maximizing an S-shaped utility function, consistent with the so-called Prospect Stochastic Dominance criterion. Further research could be directed to developing global optimization algorithms and consistent re-sampling methods for statistical inference for general risky choice problems. |
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