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An Empirical Analysis of Stochastic Dominance and Portfolio Selection in the Stock Market: Evidence from Nigeria

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  • Courage Ose Eburajolo

    (Department of Economics, Banking and Finance, Faculty of Social and Management Sciences, Benson Idahosa University, Benin City, Edo State, Nigeria)

  • Sunday Oseiweh Ogbeide

    (Department of Accounting and Finance, Faculty of Humanities, Social and Management Sciences, Elizade University, Ilara-Mokin, Ondo State, Nigeria)

Abstract

This study carried out an empirical test of stochastic dominance application on portfolio selection in the Nigerian stock market. December daily stock price of ten (10) listed insurance firms in the period 2014 to 2020 were selected and tested for stochastic dominance occurrence. The findings indicate that the selection of firm stock followed the Markowitz mean-variance and risk preference behavior of investors in the stock market. It also shows that two (2) firm stocks were first order stochastically dominant (FSD), four (4) stocks of firms were second order stochastically dominant while nine (9) stocks were third order stochastically dominant (TSD) in the period after the stock market meltdown in Nigeria. The study recommends that future researchers should empirically investigate portfolio dominance on a sector by sector basis. This will guide potential investors at selecting securities on the basis of mean-variance and utility function.

Suggested Citation

  • Courage Ose Eburajolo & Sunday Oseiweh Ogbeide, 2021. "An Empirical Analysis of Stochastic Dominance and Portfolio Selection in the Stock Market: Evidence from Nigeria," Business & Management Compass, University of Economics Varna, issue 4, pages 412-428.
    • Handle: RePEc:vrn:journl:y:2021:i:4:p:412-428
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Stochastic Dominance; Portfolio Selection; Risk Aversion; Risk seeking; Pay off;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D25 - Microeconomics - - Production and Organizations - - - Intertemporal Firm Choice: Investment, Capacity, and Financing
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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