New Tests for Richness and Poorness: A Stochastic Dominance Analysis of Income Distributions in Hong Kong

Abstract

This paper applies stochastic dominance techniques for income distribution analysis and develops tests of richness and poorness to achieve more accurate characterizations of relative welfare in populations than was previously possible. Results from our empirical application, using Hong Kong data, are consistent with predictions of the life-cycle theory of income and savings. Among other things, we find high concentrations of poor individuals among the younger cohorts, and at the same time, there are high concentrations of rich individuals amongst the oldest cohorts. Our results help to explain Hong Kong’s persistently high levels of income inequality in the population.

New trading strategy in investment and a new anomaly: A study of the hedge funds from emerging and developed markets

“…While there are several stochastic dominance tests [ [77] , [78] , [79] , [80] ], we apply the SD test developed by Davidson and Duclos [ 81 ] and modified by Bai et al [ 82 ] to investigate the preference for investors in this paper because Lean et al [ 83 ] and others and show that SD test developed by Davidson and Duclos [ 81 ] has good power and decent size.…”