An Application of Second-Order Stochastic Dominance Efficiency Test on Global Fossil Fuels Energy Stocks
Although renewable energy sources take a greater piece of the energy pie from day to day, fossil fuels are still the most important component in energy business. Many of the fossil fuels energy firms are quoted in stock exchanges all around the world and investors try to select among them. Due to the increasing complexity of financial systems, it is necessary to use some comprehensive tools to choose assets. In this research, sample of 606 stocks, which consist of Thomson Reuters Global Fossil Fuels Energy Index, was examined in six years time frame.Due to second order stochastic dominance (SSD) efficiency test, only %8 of them set an efficient portfolio. According to backtesting results in the future data, equal weighted SSD efficient portfolio has a better performance than the main index.
Keywordsó Energy, Second order stochastic dominance, Fossil fuels, Efficientportolio, Backtesting.