Assessing Risk Aversion From the Investor’s Point of View

Díaz, Antonio; Esparcia, Carlos

doi:10.3389/fpsyg.2019.01490

Cited by 21 publications

(11 citation statements)

References 111 publications

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“…Muir (2017) shows that the risk premium increases substantially in financial crises, and the asset price decline in financial crises is substantially larger than the decline in fundamentals so that expected returns going forward are large. Diaz and Esparcia (2019) explore this nature of time‐varying risk aversion and relate it to macroeconomic factors, investor sentiment, and behavioral factors. Earlier in Section 4, both the fundamentals (surplus ratios) and consumer sentiment are shown to increase the Sharpe ratios in recessionary markets.…”

Section: Economic Discussionmentioning

confidence: 99%

Sentiment or habits: Why not both?

Tham

2022

J of Financial Research

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Habits and sentiment are important psychological behaviors in asset pricing. In this article I nest consumer sentiment as a risk factor into the Campbell-Cochrane (CC) habit model and examine its impact on asset prices. The model provides an economic mechanism for the pricing of sentiment risk through its impact on habit sensitivity and equilibrium habit levels but finds its market price of risk much lower than fundamentals. The additional sentiment factor does not improve the CC model, with both models returning a matched moments error of 12% from 1980Q1 to 2021Q4.The sentiment factor, however, subsumes risk aversion with a lower resulting risk coefficient than the CC model without sentiment. Furthermore, the model shows that during the COVID period, the risk premium was driven more by consumption growth than sentiment.

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Section: Economic Discussionmentioning

confidence: 99%

Sentiment or habits: Why not both?

Tham

2022

J of Financial Research

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“…A 5% risk premium would be the effect of this. Depending on their level of risk aversion, each investors determine their own risk premium [2]. With a stated risk premium and risk-free rate, the formula can be rearranged to determine the anticipated return on an investment.…”

Section: Risk Premium Application In Financementioning

confidence: 99%

The Market Risk Premium Model Theory Study

MinRui¹

2023

Advances in Economics, Business and Management Research

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Stock market risk premiums not only influence corporate finance and investment management decisions but also serve as key inputs for numerous financial theory models. A deeper and more comprehensive knowledge of equity risk premiums has emerged as a result of developments in the theoretical research on equity premiums conducted in the West. One of the most active areas of research expands on the standard model's excessively robust assumptions to explore why the standard C-CAPM model does not adequately explain the reality premium. Through the use of several instances and financial data, the author of this essay investigates the feasibility of developing a risk premium prediction model based on risk predictability. The outcomes of several attempts demonstrate the significance of the risk premium prediction models built using a fair selection of indicators, as well as the satisfactory theoretical performance of the dynamic trading strategies developed using the models. Dynamic trading techniques have not, however, been tested in real markets; as a result, this needs to be acknowledged and addressed in the upcoming study.

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“…In this work, a static risk aversion factor is considered. Using a risk aversion factor function can improve the efficiency of the model results [50][51][52][53][54][55].…”

Section: Conclusion and Research Prospectsmentioning

confidence: 99%

Credibilistic Multi-Period Mean-Entropy Rolling Portfolio Optimization Problem Based on Multi-Stage Scenario Tree

Peykani,

Nouri,

Pishvaee

et al. 2023

Mathematics

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This study considers a time-consistent multi-period rolling portfolio optimization issue in the context of a fuzzy situation. Rolling optimization with a risk aversion component attempts to separate the time periods and psychological effects of one’s investment in a mathematical model. Furthermore, a resilient portfolio selection may be attained by taking into account fuzzy scenarios. Credibilistic entropy of fuzzy returns is used to measure portfolio risk because entropy, as a measure of risk, is not dependent on any certain sort of symmetric membership function of stock returns and may be estimated using nonmetric data. Mathematical modeling is performed to compare the Rolling Model (RM) and the Unified Model (UM). Two empirical studies from the Tehran stock market (10 stocks from April 2017 to April 2019) and the global stock market (20 stocks from April 2021 to April 2023) are utilized to illustrate the applicability of the suggested strategy. The findings reveal that RM can limit the risk of the portfolio at each time, but the portfolio’s return is smaller than that of UM. Furthermore, the suggested models outperform the standard deterministic model.

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Assessing Risk Aversion From the Investor’s Point of View

Cited by 21 publications

References 111 publications

Sentiment or habits: Why not both?

Sentiment or habits: Why not both?

The Market Risk Premium Model Theory Study

Credibilistic Multi-Period Mean-Entropy Rolling Portfolio Optimization Problem Based on Multi-Stage Scenario Tree

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