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Modeling nonlinear in Bowman’s paradox: the case of Pakistan

Author

Listed:
  • Farrukh Mahmood

    (Information Technology University of Punjab)

  • Robert M. Kunst

    (University of Vienna
    Institute for Advanced Studies)

Abstract

Prospect theory frequently explains the empirical results of Bowman's paradox (negative relationship between risk and return). However, the empirical econometric model of these researches is misspecified. This study used a data-driven approach to improve the econometric model. Empirical results based on the improved econometric model are also reinforced by data visualization to be illustrated in depth. For this purpose, we used the data of 622 listed firms on the Pakistan Stock Exchange from 2000 to 2019. Our results contradict the literature on prospect theory based on the improved econometric model.

Suggested Citation

  • Farrukh Mahmood & Robert M. Kunst, 2023. "Modeling nonlinear in Bowman’s paradox: the case of Pakistan," Empirical Economics, Springer, vol. 64(5), pages 2357-2372, May.
    • Handle: RePEc:spr:empeco:v:64:y:2023:i:5:d:10.1007_s00181-022-02308-3
    DOI: 10.1007/s00181-022-02308-3
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    References listed on IDEAS

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    More about this item

    Keywords

    Bowman’s paradox; Prospect theory; Modeling nonlinear relationship;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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