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Statistical Modeling of Asymetric Risk in Asset Returns

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Author Info

  • Knight, J.L.
  • Stachell, S.E.
  • Tran, K.C.

Abstract

The purpose of this article is to provide a straightforward model for asset returns which captures the fundamental asymmetry in upward versus downward returns. We model this feature by using scale gamma distributions for the conditional distributions of positive and negative returns. By allowing the parameters for positive returns to differ from parameters for negative returns we can test the hypothesis of symmetry. Some applications of this process to expected utility and semi-variance calculations are considered. Finally we estimate the model using daily UK FT100 index and Futures data.

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Bibliographic Info

Paper provided by Saskatchewan - Department of Economics in its series Papers with number 95-3.

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Length: 18 pages
Date of creation: 1995
Date of revision:
Handle: RePEc:fth:saskat:95-3

Contact details of provider:
Postal: UNIVERSITY OF SASKATCHEWAN, DEPARTMENT OF ECONOMICS, SASKATOON SASKATCHEWAN S7N 0W0 CANADA.
Phone: (306) 966-5197
Fax: (306) 966-5232
Web page: http://www.arts.usask.ca/economics/
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Related research

Keywords: risk ; economic models;

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Cited by:
  1. Shaun Bond & Stephen Satchell, 2006. "Asymmetry and downside risk in foreign exchange markets," European Journal of Finance, Taylor and Francis Journals, vol. 12(4), pages 313-332.
  2. Spyros Skouras, 2001. "Decisionmetrics: A Decision-Based Approach to Econometric Modeling," Working Papers 01-11-064, Santa Fe Institute.
  3. Davies, G.B. & Satchell, S.E., 2004. "The Behavioural Components of Risk Aversion," Cambridge Working Papers in Economics 0458, Faculty of Economics, University of Cambridge.
  4. Christodoulakis, George A. & Satchell, Stephen E., 1999. "The simulation of option prices with application to LIFFE options on futures," European Journal of Operational Research, Elsevier, vol. 114(2), pages 249-262, April.
  5. Hwang, Soosung & Pedersen, Christian S., 2004. "Asymmetric risk measures when modelling emerging markets equities: evidence for regional and timing effects," Emerging Markets Review, Elsevier, vol. 5(1), pages 109-128, March.
  6. Alessio Sancetta, 2004. "Copula Based Monte Carlo Integration in Financial Problems," Working Papers wp04-02, Warwick Business School, Financial Econometrics Research Centre.
  7. Stephen E. Satchell & Shaun A. Bond, 2004. "Asymmetry, Loss Aversion and Forecasting," Econometric Society 2004 Australasian Meetings 160, Econometric Society.
  8. John Knight & Colin Lizieri & Stephen Satchell, 2005. "Diversification When It Hurts? The Joint Distributions of Real Estate and Equity Markets," Real Estate & Planning Working Papers rep-wp2005-16, Henley Business School, Reading University.
  9. Emmanuel Acar & Stephen Satchell, 1997. "A theoretical analysis of trading rules: an application to the moving average case with Markovian returns," Applied Mathematical Finance, Taylor and Francis Journals, vol. 4(3), pages 165-180.
  10. Davies, G.B. & Satchell, S.E., 2004. "Continuous Cumulative Prospect Theory and Individual Asset Allocation," Cambridge Working Papers in Economics 0467, Faculty of Economics, University of Cambridge.
  11. Chu, Ba & Knight, John & Satchell, Stephen, 2011. "Large deviations theorems for optimal investment problems with large portfolios," European Journal of Operational Research, Elsevier, vol. 211(3), pages 533-555, June.
  12. Stefania D'Amico, 2005. "Density selection and combination under model ambiguity: an application to stock returns," Finance and Economics Discussion Series 2005-09, Board of Governors of the Federal Reserve System (U.S.).
  13. Farah, N. & Satchell, S.E., 2003. "A Loss Aversion Performance Measure," Cambridge Working Papers in Economics 0333, Faculty of Economics, University of Cambridge.
  14. Stephen Satchell & David Damant & Soosung Hwang, 2000. "Exponential risk measure with application to UK asset allocation," Applied Mathematical Finance, Taylor and Francis Journals, vol. 7(2), pages 127-152.
  15. Stefania D'Amico, 2004. "Density Estimation and Combination under Model Ambiguity," Computing in Economics and Finance 2004 273, Society for Computational Economics.

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