Pros win! Pros win!... or do they?: an analysis of the 'Dartboard' contest using stochastic dominance

Market efficiency is examined using The Wall Street Journal's dartboard contest in which the pros' stock selections seem superior under the contest's rules of only capital gains returns (ignoring dividends). After adjusting for systematic risk, it is found that the pros' capital gains are higher than expected. However, the results are suspect given questions concerning the validity and estimation of asset pricing models. Therefore, stochastic dominance is used to analyse the contest. It is found that the pros' capital gains outperform the darts' at the second order of stochastic dominance, but they do not dominate any market index. Finally, for total returns (including dividends), no difference is found between the pros and darts. This finding supports Metcalf and Malkiel (Applied Financial Economics, 4, pp. 371-4, 1994).