Don’t let the Greed catch you! Pleonexia rule applied to Pakistan stock exchange

Shafique, Attayah; Ayub, Usman; Zakaria, Muhammad

doi:10.1016/j.physa.2019.04.048

Cited by 6 publications

(5 citation statements)

References 20 publications

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“…There may be qualitative factors affecting the returns to be equal or less than the risk‐free returns or market returns. The results are consistent with Aziz (2019), Ahmed and Khan (2019) and contrary to Maroof et al (Maroof et al, 2019), Shafique et al (2019) and Biblop (Biplob, 2017). Further, if we are able to find empirical evidences against the efficient market hypothesis, the same data set upon increasing the sample size, time frame and country, may reflect contrasting outcomes (Kazmi, Abid, Iqbal, & Hai, 2016; Kazmi, Wahab, Zaman, & Kou, 2018).…”

Section: Conclusion and Recommendationssupporting

confidence: 87%

“…On the contrary, Maroof et al (Maroof, Javid, & Mian, 2019) empirically proved that some of the fund managers have ability to time the market and earn better returns during bearish market sentiments. Another study by Shafique, Ayub, and Zakaria (2019) used Pleonexia rule on Sharpe Ratio measures (Sharpe, 1966) and concluded that investors have a high likelihood to get gains up to the benchmark (86%) and even in future they can beat the market by consistency. Nguyen (Nguyen, Shahid, & Kernohan, 2018) and Jalees, Kazmi, and Zaman (2016) proposed that the mutual funds returns in Pakistan and India have positive association with investor confidence, age, size, turnover and liquidity of funds, which shows that the funds do generate positive returns but not more than the market returns.…”

Section: Literature Reviewmentioning

confidence: 99%

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Evaluation of risk adjusted performance of mutual funds in an emerging market

et al. 2021

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The objective of this study is to find the efficiency of an emerging-market (Pakistan) mutual funds, with reference to different measures of risks that contradict each other. We have measured risk-adjusted performance of openended equity funds of mutual funds. The reason for selecting equity funds is that it is consistent with the proxy benchmark as 100-index. As 100-index is also tracked by equities and equity funds that also consist of equity investment, it will be more appropriate to select equity funds. So, this study is limited to equity funds traded in Pakistan. The novelty of this study is its introduction of the Martin or Ulcer ratio, which is rarely used in Pakistani literature. This study will also limit the period under consideration from 2011 to 2019 to exclude the years 2008 to 2011 due to the crisis faced by the financial market in 2008 after which it took about two to three years to get the market back to its normal course. The statistics and probability values did not provide sufficient evidence to reject the hypothesis of market efficiency. The values support the efficient market hypothesis that even experienced and qualified funds manager, having sound market insights, cannot earn returns above the market, that is, the average returns of market and the average returns of each fund are equal. On the other hand, the risk adjusted returns including Sharpe, Treynor, Jensen's and Ulcer measures, are all on average negative. There may be qualitative factors affecting the returns to be equal or less than the risk free and market returns. Further research can explore the qualitative factors, for example, managers' qualification, funds goodwill, political instability and macroeconomic factors affecting the returns of funds. K E Y W O R D SJensen's alpha, martin ratio, mutual funds, risk adjusted performance, sharpe ratio, Treynor's ratio, ulcer index | INTRODUCTIONThe primary objective of investment is monetary returns. An investor invests his fund to earn a return that is at least equal to the expected return on his investment.

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Section: Conclusion and Recommendationssupporting

confidence: 87%

Section: Literature Reviewmentioning

confidence: 99%

Evaluation of risk adjusted performance of mutual funds in an emerging market

et al. 2021

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“…The study period comprises of years 2013 & 2014. 9 Deciles portfolios are also formed and used by Shafique et al (2019). 10 Visit: https://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html, https://mba.tuck.dartmouth.edu/pages/faculty/ken.french/Data_Library/det_port_form_sz.html, https://mba.tuck.dartmouth.edu/pages/faculty/ken.french/Data_Library/det_form_btm.html.…”

Section: Notesmentioning

confidence: 99%

Does Voracious Behavior favor Efficient Market Hypothesis? Role of Performance Measures

Shafique¹,

Ayub²,

Shariq³

et al. 2022

Sci. Ann. Econ. Bus.

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Greed plays an important in the fluctuations of stock prices because investors want profits irrespective of the risk taken by them. This study aims to determine, whether, in times of rising trends in the market, greediness is good for the investor or not. Secondly, investors can get high profits by beating the market or not. The already formed deciles portfolios of listed companies on NYSE, AMEX, and NASDAQ based on size and book to market value are taken from the Kenneth R. French data library from Dec 1994 to Dec 2021. Sharpe, Treynor, and Sortino ratios are used as the measure of the performance of portfolios. Ordinal logistic regression is used to calculate the probability at different benchmark levels to determine, whether the investor gets the profit by beating the market or not. The results show that the investor who used the Sharpe ratio has an average 85% probability of getting a profit of more than 75% of the benchmark of S&P-500 in all periods. Thus, the investors’ greediness is good in the long run if the investor considers total risk and can beat the market. By using the Sortino and Treynor ratio, there is an average 50% probability of achieving the profit up to the benchmark which is S&P-500. This means that the investors are not able to beat the market thus, support the efficient market hypothesis by considering the downside and market risk.

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“…4. Several studies shown the acceptance of null hypothesis in the financial literature (Ayub et al , 2018; Blanco-Perez and Brodeur, 2020; Shafique et al , 2019). …”

Section: Notesmentioning

confidence: 99%

Calmness instead of panicking: a reverse strategy to fight a crocodile attack using downside risk

Ayub

Noreen

Qaddus

et al. 2022

JM2

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Purpose Heuristics are a less complex and more understandable way to a more straightforward, astute and brisk basic decision-making strategy. The purpose of this study is the development of a rule of thumb called the “Crocodile rule” based on downside risk. Design/methodology/approach The crocodile rule is developed and tested in two steps by using data in the form of stock portfolios of the Pakistan Stock Exchange from January 2000 to November 2017. In the first phase of the study, researchers have forecasted the probabilities, while in the second phase, the researchers have used these probabilities to test the crocodile rule. Findings The findings show the acceptance of the null hypothesis, forecasting error for all categories of stocks for the first phase. The results also show that the minimum recovery chance is 58%, and the maximum recovery chance is 81% with an overall average of 69% chance of recovery. All recovery probabilities are above 50% for all portfolios; this is particularly impressive for a volatile market like Pakistan. Research limitations/implications The study also proposes another performance measure such as “value-at-risk” and compare it with present results to yield better outcomes. Furthermore, other categories of stock like profitability and growth can be tested as well. Practical implications The practical application of this rule is a choice between a “Buy-and-hold” strategy and showing myopic behavior as another extreme. Originality/value This pioneering research focuses on the development of the “Crocodile rule” by using the lower partial moments as a proxy of downside risk. This research adds value to the existing literature on performance measures. Furthermore, it also highlights and indicates which strategy should be used by the investors in case of falling trends in the market.

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Don’t let the Greed catch you! Pleonexia rule applied to Pakistan stock exchange

Cited by 6 publications

References 20 publications

Evaluation of risk adjusted performance of mutual funds in an emerging market

Evaluation of risk adjusted performance of mutual funds in an emerging market

Does Voracious Behavior favor Efficient Market Hypothesis? Role of Performance Measures

Calmness instead of panicking: a reverse strategy to fight a crocodile attack using downside risk

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