Market risk aversion under volatility shifts: An experimental study

Aragó, Vicent; Barreda‐Tarrazona, Iván; Breaban, Adriana; Matallín, Juan Carlos; Salvador, Enrique

doi:10.1016/j.iref.2022.02.022

Cited by 8 publications

(2 citation statements)

References 51 publications

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“…Thus, it is evident that estimated betas are significantly time-varying and dependent on systemic and non-systemic risk (Blume, 1975;Fama & French, 1996;Ferson & Harvey, 1991). The efficient evaluation of risk-return trade-offs has been a recurring theme in financial research, emphasizing the importance of accurate beta estimation for achieving optimal returns on portfolio investments (Aragó et al,2022;Mandal & Thakur, 2023).…”

Section: Review Of Literaturementioning

confidence: 99%

Stock Returns and Risks: An Empirical Assessment Using Modified CAPM Approach

Uddin,

Hasan,

Sajid

et al. 2023

J. educ. soc. stud.

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Modern portfolio theory assists stakeholders in financial markets to optimize their portfolios to attain expected return at a specified level of risk and uncertainty. However, the conventional capital asset pricing model (CAPM), proposed by Sharpe (1964) and Lintner (1965), fails to accurately estimate the expected rate of return of stock equities due to the presence of external uncertainties, and rapid changes in macroeconomic dynamics. Therefore, this study has adopted a modified CAPM that incorporates additional factors besides beta to more accurately estimate the expected return of stock equities. It highlights these exposures by using time-varying beta CAPM, applied to the cement industry of Pakistan for the period from January 2016 to March 2022. The results show that the expected rate of return is very much close to risk free rate of return in the cement industry of Pakistan. Furthermore, the findings of the study confirm that the prediction of expected rate of return depends on variations in estimation techniques and data availability. Additionally, by introducing the concept of a reference portfolio and a market portfolio, the modified CAPM represents an improvement over conventional method. Moreover, by breaking down the beta deviations into long-term and short-term components, this new method allows for precise computation and simplifies the prediction of expected returns in both equity and portfolio investments. The findings of this study will be beneficial for investors, financial analyst, and portfolio-managers in the decision-making about portfolio investments.

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Section: Review Of Literaturementioning

confidence: 99%

Stock Returns and Risks: An Empirical Assessment Using Modified CAPM Approach

Uddin,

Hasan,

Sajid

et al. 2023

J. educ. soc. stud.

View full text Add to dashboard Cite

show abstract

“…Existing research results indicate that the decision-making process of enterprises is usually affected by many factors, such as enterprise scale and strength, business philosophy, risk attitude, and information availability (Zhang et al, 2021). Several studies have explored the relationship between risk preference and risk taking, and have reached different conclusions, as shown in Table 1 (Weber et al, 2013;Kandasamy et al, 2014;Cohn et al, 2015;Guiso et al, 2018;König-Kersting and Trautmann, 2018;Aragó et al, 2022). The results of these studies on correlation between risk preference and risk taking, however, are inconsistent.…”

Section: Theoretical Frameworkmentioning

confidence: 99%

Risk preference and willingness to participate in the futures market: Evidence from cotton and jujube enterprises of China

Cheng

Han

Ahmad

2022

Front. Environ. Sci.

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Since the instability and uncertainty are mounting on the international landscape, it is urgent and necessary to explore the risk awareness and risk management capabilities of leading agricultural enterprises in China. Based on a survey of 219 enterprises, we build a logit model and estimate the impact of risk preference and price risk perception of leading cotton and jujube enterprises on their willingness to participate in the futures market. We further explore the moderating effect of the price risk perception on the relationship between risk preference and willingness to participate in the futures market. Results show that the risk preference and price risk perception of leading enterprises have a significant positive impact on their willingness to participate in the futures market, and the proportion of the mediating effect in the total effect is calculated to be 35.1%. Therefore, risk management instruments suitable for various types of leading enterprises and segmentation of training courses are suggested to optimize the effectiveness of China’s cotton and jujube futures market.

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Financialisation of the European Union Emissions Trading System and its influencing factors in quantiles

Wei,

Zhou,

Ren

et al. 2024

Int. J Fin Econ

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This study analyses the financialisation of the carbon market and its possible external shocks, with a focus on the European Union Emissions Trading System (EU ETS), by investigating its quantile dependence and influence paths from stage three onwards. To achieve this, we construct a theoretical model of five factors related to the financialisation of the carbon market and empirically investigate the significant influencing factors and their influence paths under different quantiles using quantile group Least Absolute Shrinkage and Selection Operator (LASSO) and quantile regression models. We find that the price of WTI crude oil and the market risk‐aversion index have a significant effect on the financialisation of the EU ETS at extremely high quantiles. Factors such as the WTI crude oil price, precipitation, average share price of thermal power companies, and the federal funds rate have a statistically significant impact on the medium quantiles. However, we find no significant influence at extremely low quantiles, indicating that policy instruments are necessary to effectively regulate the operation of the carbon market. Therefore, it is crucial for carbon market stakeholders to pay close attention to these factors and adapt to changing market conditions.

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Market risk aversion under volatility shifts: An experimental study

Cited by 8 publications

References 51 publications

Stock Returns and Risks: An Empirical Assessment Using Modified CAPM Approach

Stock Returns and Risks: An Empirical Assessment Using Modified CAPM Approach

Risk preference and willingness to participate in the futures market: Evidence from cotton and jujube enterprises of China

Financialisation of the European Union Emissions Trading System and its influencing factors in quantiles

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