Thou should not panic! Let calmness fight the Crocodile Bite

Ayub, Usman; Qaddus, Uzma; Zakaria, Muhammad; Shafique, Attayah; Ahmed, Junaid

doi:10.1016/j.physa.2018.06.040

Cited by 1 publication

(9 citation statements)

References 27 publications

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“…Ayub et al (2018) develop and tests the crocodile rule. It is based on the premise of hope of recovery when the performance measure drops to a certain level normally a benchmark.…”

Section: Methodsmentioning

confidence: 99%

“…Lastly, the question arises as to how much the losses, in this case, would be and how much an investor is willing to sacrifice. This is very common in the stock market (Ayub et al , 2018).…”

Section: Introductionmentioning

confidence: 99%

“…This issue is addressed by Ayub et al (2018) by presenting a heuristic for loss recovery based on the Sharpe ratio. However, meticulous analysis questions the use of variance as a proxy of risk in the Sharpe ratio.…”

Section: Introductionmentioning

confidence: 99%

“…These reasons provide the necessary catalyst to extend Ayub et al (2018) work by replacing variance with downside risk. The downside risk is based on Roy (1952) safety-first rule and caters to the condition of normality.…”

Section: Introductionmentioning

confidence: 99%

“…Therefore, to incorporate downside risk in the study, the modification is done by replacing standard deviation in the denominator with LPM, which is a better measure for the risk. Previously, this rule of thumb was developed by using the Sharpe ratio (total risk measure) (Ayub et al , 2018). Moreover, according to the authors knowledge and understanding, this is one of the comprehensive study that uses the LPM as performance measures for the development of the crocodile rule, which connects the standard finance with the behavioral aspects.…”

Section: Introductionmentioning

confidence: 99%

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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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“…Ayub et al (2018) develop and tests the crocodile rule. It is based on the premise of hope of recovery when the performance measure drops to a certain level normally a benchmark.…”

Section: Methodsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 3 more Smart Citations