Moving stochastic dominance: an alternative method for testing market efficiency

The purposes of this study are: (1) to propose a more general method–moving stochastic dominance (MSD)–for testing market efficiency, (2) to compare and contrast the MSD method with the cumulative average residual (CAR) risk‐return analysis, and (3) to illustrate the MSD methodology on a sample of stock splits. The constant CAR analysis results are consistent with previous studies. The moving CAR results are in conflict with previous studies and indicate that investors are worse off after a stock split irrespective of the subsequent dividend change. The MSD results indicate that investors are approximately equally well off irrespective of the subsequent dividend change.