In the financial world, importance of “downside risk” and “higher moments” has been emphasized, predominantly in developing countries such as Pakistan, for a substantial period. Consequently, this study tests four models suitable capital asset pricing model. These are CAPM’s beta, beta replaced by skewness (gamma), with gamma, downside CAPM (DCAPM), gamma. The problems high correlation between ...

In this paper, we aim at introducing how one of the recently developed statistical learning techniques, temporal factor analysis (TFA), which is originally devoted for further study of the arbitrage pricing theory (APT), could be exploited in financial data mining to determine weights in portfolio optimization problem. Furthermore, we study several variants of the APT-based Sharpe ratio maximiz...

Recently, Support Vector Regression (SVR) has been applied to financial time series prediction. Typical characteristics of financial time series are nonstationary and noisy in nature. The volatility, usually time-varying, of the time series therefore contains some valuable information about the series. Previously, we had proposed to use the volatility in the data to adaptively changing the widt...

This paper investigates the significance of volatility, skewness, kurtosis, and downside risk in predicting the cross-sectional variation in future returns on corporate bonds. The results indicate a significantly positive (negative) link between volatility (skewness) and expected returns, whereas kurtosis does not have a robust incremental contribution to the predictability of bond returns. Bon...

We examine how the banking sector may ignite the formation of asset price bubbles when there is access to abundant liquidity. Inside banks, given limited liability and lack of observability of effort, loan officers (or risk takers) are compensated based on the volume of loans. Outside banks, when there is heightened macroeconomic risk, investors reduce direct investment and hold more bank depos...

The purpose of this article is to demonstrate the effect of investment time horizon on the choice of risky assets in a portfolio when the investor in question is optimizing a Safety-First (downside risk-aversion) utility function. It is shown, under standard assumptions, that although shortfall risk decreases exponentially with investment time horizon, the portfolio asset allocation proportions...

In this paper we provide empirical evidence that attitudes towards risk are important when assessing the impact of conservation policies on production choices. In the case of an irrigation water quota, deriving water demand responses from a multi-input farmer decision model under risk has to account for unobserved risk attitudes. We first follow the approach of Antle (1987) based on higher-orde...

This paper discusses a class of risk measures developed from a risk measure recently proposed for insurance pricing. This paper reviews the distortion function approach developed in the actuarial literature for insurance risk. The proportional hazards transform is a particular case. The relationship between this approach to risk and other approaches including the dual theory of choice under ris...

Semi-absolute deviation is a commonly used downside risk measure in the portfolio optimization problem. However, there is no literature on taking semi-absolute deviation as a risk measure in the framework of uncertainty theory. This paper fills the gap by means of defining semi-absolute deviation for uncertain variables and establishes the corresponding mean semi-absolute deviation models in un...