Preferences over location-scale family

Wong, Wing Keung; Ma, Chenghu

doi:10.1007/s00199-007-0254-3

“…One may incorporate other information, for example, the economic and financial environment (Fong, Lean, and Wong, 2008), the mean-variance rule (Wong and Ma, 2008;Bai, Hui, Wong, and Zitikis, 2012), CAPM statistics (Leung, Ng and Wong, 2012), VaR rule (Ma and Wong, 2010), portfolio optimization (Bai, Liu, and Wong, 2009), and portfolio diversification (Egozcue and Wong, 2010) into the theory developed in the paper to make better investment decisions.…”

Section: Discussionmentioning

confidence: 99%

A Bayesian approach to excess volatility, short-term underreaction and long-term overreaction during financial crises

Guo

¹

,

McAleer

²

,

Wong

³

et al. 2017

The North American Journal of Economics and Finance

Self Cite

View full text Add to dashboard Cite

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractIn this paper, we introduce a new Bayesian approach to explain some market anomalies during financial crises and subsequent recovery. We assume that the earnings shock of an asset follows a random walk model with and without drift to incorporate the impact of financial crises. We further assume the earning shock follows an exponential family distribution to take care of symmetric as well as asymmetric information. By using this model setting, we develop some properties on the expected earnings shock and its volatility, and establish properties of investor behavior on the stock price and its volatility during financial crises and subsequent recovery. Thereafter, we develop properties to explain excess volatility, short-term underreaction, long-term overreaction, and their magnitude effects during financial crises and subsequent recovery.

show abstract

“…Thus, adopting SD for analysis will include inferences made by employing VaR and conditional VaR. We also note that if the prospects belong to the same local-scale family, the preference for the prospects drawn from the MV criterion will be the same as that drawn from the ascending SD criterion (Meyer, 1987;Wong and Ma, 2008). In addition, this paper extends the work on the SD test from risk-averters to risk-seekers.…”

Section: Resultsmentioning

confidence: 82%

Do REITs Outperform Stocks and Fixed-Income Assets? New Evidence from Mean-Variance and Stochastic Dominance Approaches

Chiang

¹

,

Wong

²

2008

JRFM

Self Cite

View full text Add to dashboard Cite

This paper re-examines the performance of REITs, stocks, and fixed-income assets based on the preferences of risk-averse and risk-seeking investors using mean-variance and stochastic dominance approaches. Our findings indicate no first-order stochastic dominance and no arbitrage opportunity among these assets. However, our stochastic dominance results reveal that in order to maximize their expected utility, the risk-averse prefer fixed-income assets over real estate, which, in turn, is preferable to stocks. On the other hand, to maximize their expected utility, all risk-seeking investors would prefer to invest in stocks than in real estate, but real estate, in turn, is preferable to fixed-income assets.

show abstract

“…Sinn (1990) finds that decreasing absolute risk aversion implies that the slope of the indifference curve declines with an increase in µ, given a positive σ. Wong (2006) studies the shape of the indifference curve for risk averters, risk seekers, and risk neutral investors for generalized utility functions as stated in Meyer (1987). Wong and Ma (2008) further extend the work on the location-scale family with general multiple random seed sources and develop geometrical and topological properties of the location-scale expected utility functions.…”

Section: Indifference Curves Under the Nm Modelmentioning

confidence: 86%

Prospect Theory and Hedging Risks

Бролл¹,

Egozcue

²

,

Wong

³

et al. 2010

SSRN Journal

Self Cite

5

0

View full text Add to dashboard Cite

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Prospect theory and hedging risks Terms of use: Documents in Udo Broll Martín Egozcue T e c h n i s c h e U n i v e r s i t ä t D r e s d e n U n i v e r s i t y o f M o n t e video F a c u l t y o f B u s i n e s s a n d E c o n o m i c s D e p a r t m e n t o f E c onomics 1 0 6 2 D r e s d e n 1 1 6 0 0 M o n t e v i d e o udo.broll@tu-dresden.de megozcue@correo.um.edu.uy Wong Wing-Keung Riardas Zitikis H o n g K o n g B a p t i s t U n i v e r s i t y U n i v e r s i t y o f W e s t e r n Ontario D e p a r t m e n t o f E c o n o m i c s D e p a r t m e n t o f S t a t i s t i c a l and Actuarial Sciences K o w l o o n T o n g , H o n g K o n g N 6 A 5 B 7 L o n d o n , O n t a r i o , Canada awong@hkbu.edu.hk zitikis@stats.uwo.caAbstract:The prospect theory is one of the most popular decision-making theories. It is based on the S-shaped utility function, unlike the von Neumann and Morgenstern (NM) theory, which is based on the concave utility function. The S-shape brings in mathematical challenges: simple extensions and generalizations of NM theory into the prospect theory cannot be frequently achieved. For example, the nature of monotonicity of the indifference curve depends on the underlying mean. Price hedging decisions also become more complex within the prospect theory. We discuss these topics in detail and offer a general result concerning the sign of a covariance from which we then infer desired properties of the indifference curve and also justify hedging decisions within the prospect theory. We illustrate our general considerations with a thoroughly worked out example.JEL-Classification: D01, D03, D21, D81

show abstract

Preferences over location-scale family

Abstract: Location-scale family, Inverse problem, Non-expected utility function, Stochastic dominance, Location-scale dominance, Mean-variance rule, G11, C60, G10,

Cited by 134 publications

References 47 publications

A Bayesian approach to excess volatility, short-term underreaction and long-term overreaction during financial crises

A Bayesian approach to excess volatility, short-term underreaction and long-term overreaction during financial crises

Do REITs Outperform Stocks and Fixed-Income Assets? New Evidence from Mean-Variance and Stochastic Dominance Approaches

Prospect Theory and Hedging Risks

Contact Info

Product

Resources

About