Stochastic dominance application on Jakarta Islamic index with normal distribution

Abstract

Investment on the stock market is being popular nowadays, to gain profits in the future called return. Stock prices in the stock exchange moves fast and uncertain in which investors face risk. To optimize return, alternative investment choices need to be concerned. Stochastic Dominance (SD) is decision criterion under risk for nonparametric comparison of distribution functions. This research is aimed to apply SD criteria on monthly data of closing stock price which is categorized as Jakarta Islamic Index (JII). Parametric approach using normal distribution will be added to improve the decision rule of SD. Furthermore, normality test was performed on the stock returns. The research shows that the data obtained formed 45 stock combinations with 29 dominant stock combinations as the result of SD analysis.