Mean-variance (MV) optimization is one of the most impactful frameworks in the world of financial markets; however, mean-variance analysis adopts relatively strict assumptions including, but not limited to, investor preferences and normal probability distribution. Because of these strong assumptions, the effectiveness of MV optimization becomes a major concern, especially in various market conditions. Stochastic dominance (SD), utilized in numerous fields, develops a preference-ranking strategy that attempts to relax the limitations of mean-variance analysis. The central question of this research is to determine whether stochastic dominance techniques outperform their mean-variance counterparts over the course of the 2008 Global Financial Crisis. This question is empirically tested by applying the MV and second-order SD criteria to the College of Wooster’s Jenny Investment Club portfolio. Further contemplation of the prevailing strategy’s performance on a quarterly basis, relative to macroeconomic factors that affect equity markets, is considered. Due to the lack of a proper weighting strategy, stochastic dominance techniques appear to be better suited as a complement to mean-variance strategies, rather than as a replacement.


Tian, Huiting


Business Economics


Portfolio and Security Analysis


Portfolio Theory, Stochastic Dominance, 2008 GFC

Publication Date


Degree Granted

Bachelor of Arts

Document Type

Senior Independent Study Thesis



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