Portfolio efficiency tests based on stochastic dominance and co-integration

Abstract

The theory of dynamic portfolio behaviour is evaluated by estimating and comparing the relative efficiency of alternative mutual fund portfolios by means of stochastic dominance and co-integration tests. Varying market conditions such as bullish and bearish markets and volatility of temporal return variances are found to play a major role in the return generating process. Thus the risk-return relationship is found to be highly asymmetrical and some groups of mutual funds tend to outperform the others.