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Portfolio Selection By Second Order Stochastic Dominance Based On The Risk Aversion Degree Of Investors
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Book Synopsis Portfolio Selection by Second Order Stochastic Dominance Based on the Risk Aversion Degree of Investors by : Leili Javanmardi
Download or read book Portfolio Selection by Second Order Stochastic Dominance Based on the Risk Aversion Degree of Investors written by Leili Javanmardi and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Reward-risk Portfolio Selection and Stochastic Dominance by : Enrico G. De Giorgi
Download or read book Reward-risk Portfolio Selection and Stochastic Dominance written by Enrico G. De Giorgi and published by . This book was released on 2005 with total page 25 pages. Available in PDF, EPUB and Kindle. Book excerpt: The portfolio selection problem is traditionally modelled by two different approaches. The first one is based on an axiomatic model of risk-averse preferences, where decision makers are assumed to possess an expected utility function and the portfolio choice consists in maximizing the expected utility over the set of feasible portfolios. The second approach, first proposed by Markowitz (1952), is very intuitive and reduces the portfolio choice to a set of two criteria, reward and risk, with possible tradeoff analysis. Usually the reward-risk model is not consistent with the first approach, even when the decision is independent from the specific form of the risk-averse expected utility function, i.e. when one investment dominates another one by second order stochastic dominance. In this paper we generalize the reward-risk model for portfolio selection. We define reward measures and risk measures by giving a set of properties these measures should satisfy. One of these properties will be the consistency with second order stochastic dominance, to obtain a link with the expected utility portfolio selection. We characterize reward and risk measures and we discuss the implication for portfolio selection.
Download or read book Stochastic Dominance written by Haim Levy and published by Springer Science & Business Media. This book was released on 2006-08-25 with total page 439 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book is devoted to investment decision-making under uncertainty. The book covers three basic approaches to this process: the stochastic dominance approach; the mean-variance approach; and the non-expected utility approach, focusing on prospect theory and its modified version, cumulative prospect theory. Each approach is discussed and compared. In addition, this volume examines cases in which stochastic dominance rules coincide with the mean-variance rule and considers how contradictions between these two approaches may occur.
Book Synopsis Second Order Stochastic Dominance, Reward-risk Portfolio Selection and the CAPM by : Enrico De Giorgi
Download or read book Second Order Stochastic Dominance, Reward-risk Portfolio Selection and the CAPM written by Enrico De Giorgi and published by . This book was released on 2005 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Portfolio Choice Based on Third-Degree Stochastic Dominance by : Thierry Post
Download or read book Portfolio Choice Based on Third-Degree Stochastic Dominance written by Thierry Post and published by . This book was released on 2016 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop an optimization method for constructing investment portfolios that dominate a given benchmark index in terms of third-degree stochastic dominance. Our approach relies on the properties of the semivariance function, a refinement of an existing 'super-convex' dominance condition and quadratic constrained programming. We apply our method to historical stock market data using an industry momentum strategy. Our enhanced portfolio generates important performance improvements compared with alternatives based on mean-variance dominance and second-degree stochastic dominance. Relative to the CSRP all-share index, our portfolio increases average out-of-sample return by almost seven percentage points per annum without incurring more downside risk, using quarterly rebalancing and without short selling.
Book Synopsis Stochastic Dominance by : G. A. Whitmore
Download or read book Stochastic Dominance written by G. A. Whitmore and published by . This book was released on 1978 with total page 424 pages. Available in PDF, EPUB and Kindle. Book excerpt: Theoretical foundations of stochastic dominance; Portfolio applications: empirical studies; Portfolio applications: computational aspects; Applications to financial management and capital markets; Applications in economic theory and analysis.
Book Synopsis Second Order Stochastic Dominance, Reward-risk Portfolio Selection and the CAPM by : Enrico De Giorgi
Download or read book Second Order Stochastic Dominance, Reward-risk Portfolio Selection and the CAPM written by Enrico De Giorgi and published by . This book was released on 2005 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Strategic Asset Allocation by : John Y. Campbell
Download or read book Strategic Asset Allocation written by John Y. Campbell and published by OUP Oxford. This book was released on 2002-01-03 with total page 272 pages. Available in PDF, EPUB and Kindle. Book excerpt: Academic finance has had a remarkable impact on many financial services. Yet long-term investors have received curiously little guidance from academic financial economists. Mean-variance analysis, developed almost fifty years ago, has provided a basic paradigm for portfolio choice. This approach usefully emphasizes the ability of diversification to reduce risk, but it ignores several critically important factors. Most notably, the analysis is static; it assumes that investors care only about risks to wealth one period ahead. However, many investors—-both individuals and institutions such as charitable foundations or universities—-seek to finance a stream of consumption over a long lifetime. In addition, mean-variance analysis treats financial wealth in isolation from income. Long-term investors typically receive a stream of income and use it, along with financial wealth, to support their consumption. At the theoretical level, it is well understood that the solution to a long-term portfolio choice problem can be very different from the solution to a short-term problem. Long-term investors care about intertemporal shocks to investment opportunities and labor income as well as shocks to wealth itself, and they may use financial assets to hedge their intertemporal risks. This should be important in practice because there is a great deal of empirical evidence that investment opportunities—-both interest rates and risk premia on bonds and stocks—-vary through time. Yet this insight has had little influence on investment practice because it is hard to solve for optimal portfolios in intertemporal models. This book seeks to develop the intertemporal approach into an empirical paradigm that can compete with the standard mean-variance analysis. The book shows that long-term inflation-indexed bonds are the riskless asset for long-term investors, it explains the conditions under which stocks are safer assets for long-term than for short-term investors, and it shows how labor income influences portfolio choice. These results shed new light on the rules of thumb used by financial planners. The book explains recent advances in both analytical and numerical methods, and shows how they can be used to understand the portfolio choice problems of long-term investors.
Book Synopsis Portfolio Optimization with DARA Stochastic Dominance Constraints by : Milos Kopa
Download or read book Portfolio Optimization with DARA Stochastic Dominance Constraints written by Milos Kopa and published by . This book was released on 2018 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: An optimization method is developed for constructing investment portfolios which stochastically dominate a given benchmark for all decreasing absolute risk-averse investors, using Quadratic Programming. The method is applied to standard data sets of historical returns of equity price reversal and momentum portfolios. The proposed optimization method improves upon the performance of Mean-Variance optimization by tens to hundreds of basis points per annum, for low to medium risk levels. The improvements critically depend on imposing the complex condition of Decreasing Absolute Risk Aversion in addition to the simpler conditions of global risk aversion and decreasing risk aversion.
Book Synopsis Gains from Diversification by : Martin Egozcue
Download or read book Gains from Diversification written by Martin Egozcue and published by . This book was released on 2008 with total page 21 pages. Available in PDF, EPUB and Kindle. Book excerpt: By incorporating both majorization theory and stochastic dominance theory, this paper presents a general theory and a unifying framework for determining the diversification preferences of risk-averse investors and conditions under which they would unanimously judge a particular asset to be superior. In particular, we develop a theory for comparing the preferences of different convex combinations of assets that characterize a portfolio to give higher expected utility by second-order stochastic dominance. Our findings also provide additional methodology for determining the second-order stochastic dominance efficient set.
Book Synopsis Recent Applications of Financial Risk Modelling and Portfolio Management by : Škrinjari?, Tihana
Download or read book Recent Applications of Financial Risk Modelling and Portfolio Management written by Škrinjari?, Tihana and published by IGI Global. This book was released on 2020-09-25 with total page 432 pages. Available in PDF, EPUB and Kindle. Book excerpt: In today’s financial market, portfolio and risk management are facing an array of challenges. This is due to increasing levels of knowledge and data that are being made available that have caused a multitude of different investment models to be explored and implemented. Professionals and researchers in this field are in need of up-to-date research that analyzes these contemporary models of practice and keeps pace with the advancements being made within financial risk modelling and portfolio control. Recent Applications of Financial Risk Modelling and Portfolio Management is a pivotal reference source that provides vital research on the use of modern data analysis as well as quantitative methods for developing successful portfolio and risk management techniques. While highlighting topics such as credit scoring, investment strategies, and budgeting, this publication explores diverse models for achieving investment goals as well as improving upon traditional financial modelling methods. This book is ideally designed for researchers, financial analysts, executives, practitioners, policymakers, academicians, and students seeking current research on contemporary risk management strategies in the financial sector.
Book Synopsis Stochastic Dominance and Applications to Finance, Risk and Economics by : Songsak Sriboonchita
Download or read book Stochastic Dominance and Applications to Finance, Risk and Economics written by Songsak Sriboonchita and published by CRC Press. This book was released on 2009-10-19 with total page 455 pages. Available in PDF, EPUB and Kindle. Book excerpt: Drawing from many sources in the literature, Stochastic Dominance and Applications to Finance, Risk and Economics illustrates how stochastic dominance (SD) can be used as a method for risk assessment in decision making. It provides basic background on SD for various areas of applications. Useful Concepts and Techniques for Economics ApplicationsThe
Book Synopsis Optimizing Marginal Conditional Stochastic Dominance Portfolios by : Gleb Gertsman
Download or read book Optimizing Marginal Conditional Stochastic Dominance Portfolios written by Gleb Gertsman and published by . This book was released on 2018 with total page 23 pages. Available in PDF, EPUB and Kindle. Book excerpt: Marginal Conditional Stochastic Dominance (MCSD) states the probabilistic conditions under which, given a specific portfolio, one risky asset is marginally preferred to another by all risk-averse investors. Furthermore, by increasing the share of dominating assets and reducing the share of dominated assets one can improve the portfolio performance for all these investors. We use this standard MCSD model sequentially to build optimal portfolios that are then compared to the optimal portfolios obtained from Chow's MCSD statistical test model. These portfolios are furthermore compared to the portfolios obtained from the recently developed Almost Marginal Conditional Stochastic Dominance (AMCSD) model. The AMCSD model restricts the class of risk-averse investors by not including extreme case utility functions and reducing the incidence of unrealistic behavior under uncertainty. For each model, an algorithm is developed to manage the various dynamic portfolios traded on the New York, Frankfurt, London, and Tel Aviv stock exchanges during the years 2000-2012. The results show how the various MCSD optimal portfolios provide valid investment alternatives to stochastic dominance optimization.MCSD and AMCSD investment models dramatically improve the initial portfolios and accumulate higher returns while the strategy derived from Chow's statistical test performed poorly and did not yield any positive return.
Book Synopsis How Does Beta Explain Stochastic Dominance Efficiency? by : Haim Shalit
Download or read book How Does Beta Explain Stochastic Dominance Efficiency? written by Haim Shalit and published by . This book was released on 2009 with total page 21 pages. Available in PDF, EPUB and Kindle. Book excerpt: Stochastic dominance rules provide necessary and sufficient conditions for characterizing efficient portfolios that suit all expected utility maximizers. For the finance practitioner, though, these conditions are not easy to apply or interpret. Portfolio selection models like the mean-variance model offer intuitive investment rules that are easy to understand, as they are based on parameters of risk and return. We present stochastic dominance rules for portfolio choices that can be interpreted in terms of simple financial concepts of systematic risk and mean return. Stochastic dominance is expressed in terms of Lorenz curves, and systematic risk is expressed in terms of Gini. To accommodate risk aversion differentials across investors, we expand the conditions using the extended Gini.
Book Synopsis Higher Order Stochastic Dominance and Aggregate Investor Preferences by : Yi Fang
Download or read book Higher Order Stochastic Dominance and Aggregate Investor Preferences written by Yi Fang and published by . This book was released on 2016 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper finds necessary and sufficient conditions of Nth-order stochastic dominance (SD) for risk aversion and develops linear tests for Nth-order SD. We introduce a linear FDSD (fourth-order SD and decreasing absolute risk aversion SD) test for standard risk aversion. A positive research shows that higher order risk attitude cannot explain pricing errors of the small size and high value benchmark portfolios. The empirical results also suggests that any Nth-order SD criterion might not be superior to MV rule when the MV kernel does not violate non-satiation. FDSD has the best discriminate power and substantially improves the pricing kernel.
Book Synopsis Downside Risk Sensitivity and Conditional Stochastic Dominance in Euro Area Stock Markets by : José S. da Fonseca
Download or read book Downside Risk Sensitivity and Conditional Stochastic Dominance in Euro Area Stock Markets written by José S. da Fonseca and published by . This book was released on 2019 with total page 18 pages. Available in PDF, EPUB and Kindle. Book excerpt: This article compares portfolio selection based on the downside risk sensitivity with portfolio selection based on Sharpe or Treynor ratios. Downside risk sensitivity (DRS) is given by an asset pricing model in which the downside and upside market returns are separated variables relative to target return. While CAPM, Sharpe ratios and Treynor ratios are based on symmetric risk aversion in both sides of the expected return of the market portfolio, the assumption underlying downside risk sensitivity is that investors utility functions weight losses more heavily s than gains relative to the target return.The methodology used consists of making alternate estimations using a downside-upside risk model (DURM) and CAPM. Portfolios based on DRS, Sharpe ratios and Treynor ratios DRS were created and their composition is updated using the output of rolling estimations of the asset pricing models. The ex post returns of portfolios based on the three alternate methods of portfolio selection are evaluated comparatively by conditional Sharpe ratios which provide information about the conditional stochastic dominance between them.We found that portfolio selection based on downside risk sensitivity gives better protection against losses and better global performance than portfolios based on Sharpe ratios and Treynor ratios.
Book Synopsis Portfolio Analysis of Stocks, Bonds and Managed Futures Using Compormise Stochastic Dominance by : Daniel Fischmar
Download or read book Portfolio Analysis of Stocks, Bonds and Managed Futures Using Compormise Stochastic Dominance written by Daniel Fischmar and published by . This book was released on 1990 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt:
