scholarly journals Performance of Portfolios Based on the Expected Utility-Entropy Fund Rating Approach

Entropy ◽  
2021 ◽  
Vol 23 (4) ◽  
pp. 481
Author(s):  
Daniel Chiew ◽  
Judy Qiu ◽  
Sirimon Treepongkaruna ◽  
Jiping Yang ◽  
Chenxiao Shi
Keyword(s):  
Mutual Funds ◽  
Portfolio Selection ◽  
Expected Utility ◽  
Decision Model ◽  
Risky Choice ◽  
Numerical Representation ◽  
Better Than ◽  
The Eu

Yang and Qiu proposed and reframed an expected utility–entropy (EU-E) based decision model. Later on, a similar numerical representation for a risky choice was axiomatically developed by Luce et al. under the condition of segregation. Recently, we established a fund rating approach based on the EU-E decision model and Morningstar ratings. In this paper, we apply the approach to US mutual funds and construct portfolios using the best rating funds. Furthermore, we evaluate the performance of the fund ratings based on the EU-E decision model against Morningstar ratings by examining the performance of the three models in portfolio selection. The conclusions show that portfolios constructed using the ratings based on the EU-E models with moderate tradeoff coefficients perform better than those constructed using Morningstar. The conclusion is robust to different rebalancing intervals.

scholarly journals Performance of Portfolios Based on the Expected Utility-Entropy Fund Rating Approach

Proceedings ◽  
2019 ◽  
Vol 46 (1) ◽  
pp. 15
Author(s):  
Daniel Chiew ◽  
Judy Qiu ◽  
Sirimon Treepongkaruna ◽  
Jiping Yang ◽  
Chenxiao Shi
Keyword(s):  
Mutual Funds ◽  
Portfolio Selection ◽  
Expected Utility ◽  
Decision Model ◽  
Risky Choice ◽  
Numerical Representation ◽  
Better Than ◽  
The Eu

Yang and Qiu proposed and reframed an expected utility-entropy (EU-E) based decision model; later on, similar numerical representation for a risky choice was axiomatically developed by Luce et al. under the condition of segregation. Recently, we established a fund rating approach based on the EU-E decision model and Morningstar ratings. In this paper, we apply the approach to US mutual funds and construct portfolios using the best rated funds. Furthermore, we evaluate the performance of the fund ratings based on EU-E decision model against Morningstar ratings by examining the performance of the three models in portfolio selection. The conclusions show that portfolios constructed using the ratings based on the EU-E models with moderate tradeoff coefficients perform better than those constructed using Morningstar. The conclusion is robust to different rebalancing intervals.

scholarly journals Investigation of the Stochastic Choice under Risk using Experimental Data

2020 ◽  
Vol 22 (2) ◽  
pp. 137
Author(s):  
Yudistira Permana ◽  
Giovanni Van Empel ◽  
Rimawan Pradiptyo
Keyword(s):  
Expected Utility ◽  
Goodness Of Fit ◽  
Random Utility ◽  
Utility Model ◽  
Stochastic Choice ◽  
Decisions Under Risk ◽  
Empirical Performance ◽  
Maximum Likelihood Technique ◽  
Better Than ◽  
The Eu

This paper extends the analysis of the data from the experiment undertaken by Pradiptyo et al. (2015), to help explain the subjects’ behaviour when making decisions under risk. This study specifically investigates the relative empirical performance of the two general models of the stochastic choice: the random utility model (RUM) and the random preference model (RPM) where this paper specifies these models using two preference functionals, expected utility (EU) and rank-dependent expected utility (RDEU). The parameters are estimated in each model using a maximum likelihood technique and run a horse-race using the goodness-of-fit between the models. The results show that the RUM better explains the subjects’ behaviour in the experiment. Additionally, the RDEU fits better than the EU for modelling the stochastic choice. 

scholarly journals Probability weighting explains Independence Axiom violations of Expected Utility Theory in monkeys

2021 ◽  
Author(s):  
Simone Ferrari-Toniolo ◽  
Leo Chi U Seak ◽  
Wolfram Schultz
Keyword(s):  
Expected Utility ◽  
Utility Theory ◽  
Expected Utility Theory ◽  
Risky Choice ◽  
Independence Axiom ◽  
Probability Weighting ◽  
Preference Reversals ◽  
Risky Decision ◽  
Linear Discriminant ◽  
Better Than

Expected Utility Theory (EUT) provides axioms for maximizing utility in risky choice. The independence axiom (IA) is its most demanding axiom: preferences between two options should not change when altering both options equally by mixing them with a common gamble. We tested common consequence (CC) and common ratio (CR) violations of the IA in thousands of stochastic choice over several months using a large variety of binary option sets. Three monkeys showed few outright Preference Reversals (8%) but substantial graded Preference Changes (46%) between the initial preferred gamble and the corresponding altered gamble. Linear Discriminant Analysis (LDA) indicated that gamble probabilities predicted most Preference Changes in CC (72%) and CR (87%) tests. The Akaike Information Criterion indicated that probability weighting within Cumulative Prospect Theory (CPT) explained choices better than models using Expected Value (EV) or EUT. Fitting by utility and probability weighting functions of CPT resulted in nonlinear and non-parallel indifference curves (IC) in the Marschak-Machina triangle and suggested IA non-compliance of models using EV or EUT. Indeed, CPT models predicted Preference Changes better than EV and EUT models. Indifference points in out-of-sample tests were closer to CPT-estimated ICs than EV and EUT ICs. Finally, while the few outright Preference Reversals may reflect the long experience of our monkeys, their more graded Preference Changes corresponded to those reported for humans. In benefitting from the wide testing possibilities in monkeys, our stringent axiomatic tests contribute critical information about risky decision-making and serves as basis for investigating neuronal decision mechanisms.

The resilience of green stocks during COVID-19: a clustering approach

2020 ◽  
Vol 3 (2020) ◽  
pp. 33-47
Author(s):  
Giovanni Maria Bonagura ◽  
◽  
Laura D'Amico ◽  
Alessio Iacopino ◽  
Lorenzo Prosperi ◽  
...  
Keyword(s):  
Mutual Funds ◽  
Large Fraction ◽  
Limited Evidence ◽  
Full Sample ◽  
Asset Pricing Models ◽  
Clustering Approach ◽  
The Difference ◽  
Special Case ◽  
Better Than ◽  
The Eu

There is growing evidence that ESG investments have demonstrated higher resiliency to the COVID-19 pandemic shock. While the performance of mutual funds is largely documented, there is limited evidence on stocks, especially in the European market. In this paper we focus on the environmental dimension of firms and we identify a green cluster among listed companies in the EU using a comprehensive database of environmental information. We let the data speak: we identify three clusters of firms (green, non-green and brown) by using clustering techniques and we evaluate their financial performances (return, risk and liquidity) over the full sample period and around the COVID-19 Crisis. We find that green firms yielded a lower return than non-green firms, especially after the Paris Agreement. However, in March 2020, green firms performed better than the other clusters. We find evidence that the COVID-19 period is not a special case, since green firms perform generally better during market contractions. We then extend standard asset pricing models by including the Green Risk Factor, the difference between the green and brown portfolios’ returns and we find that the Factor is significant for a large fraction of firms suggesting that climate risk is priced in stocks.

scholarly journals The Relative Success of WTO Dispute Settlement and What Planet Would the EU Investment Court System Be On? A Rejoinder to AJIL Unbound Comments

AJIL Unbound ◽  
2015 ◽  
Vol 109 ◽  
pp. 316-318
Author(s):  
Joost Pauwelyn
Keyword(s):  
World Trade ◽  
Public Perception ◽  
Dispute Settlement ◽  
Decision Makers ◽  
The Other ◽  
Court System ◽  
Wto Dispute Settlement ◽  
The Many ◽  
Better Than ◽  
The Eu

I am extremely grateful, and humbled, by the wealth of comments received on my AJIL article through this AJIL Unbound Symposium. One of the many points I take away from these reactions is, indeed, that my analysis offers a snapshot and that many of the critiques now leveled against Investor-State Dispute Settlement (ISDS) are, in Catherine Rogers’s words, “effectively recycled versions of criticisms that were originally leveled against the WTO and its decision-makers.” (Freya Baetens makes a similar point.)In this rejoinder, I would only like to make two points. Firstly, many commentators seem to think that in this article I took the normative position that World Trade Organization (WTO) dispute settlement is “better” than ISDS. Although I did point to the current discrepancy in public perception of the respective regimes, I purposefully avoided expressing any personal, normative position on one being “better” than the other (but apparently not explicitly enough).

Investments in ESG-Rated Mutual Funds: Is Good Better than Great?

2019 ◽  
Vol 22 (1) ◽  
pp. 56-61
Author(s):  
Bernadette M. Ruf ◽  
Nandita Das ◽  
Swarn Chatterjee ◽  
Aman Sunder
Keyword(s):  
Mutual Funds ◽  
Better Than

scholarly journals New Agricultural Model of Economic Sustainability for Wheat Seed Production in Romania

2020 ◽  
Vol 12 (10) ◽  
pp. 4182 ◽  
Author(s):  
Romeo Victor Ionescu ◽  
Monica Laura Zlati ◽  
Valentin Marian Antohi ◽  
Silvius Stanciu ◽  
Florina Oana Virlanuta ◽  
...  
Keyword(s):  
Seed Production ◽  
Decision Model ◽  
Management Decision ◽  
Wheat Seed ◽  
Managerial Decision ◽  
Product Demand ◽  
Proposed Model ◽  
Study Results ◽  
European Markets ◽  
The Eu

In the conditions of a digitalized and sustainable economy, a smart decision is focused on all demand aspects regarding: the product demand, the quality demand, and the elements of national and international bodies able to ensure the criteria of economic integrity on the European Markets. These aspects represent a set of challenges and indicate the smart component of the management decision assisted by reliable economic models. The present work aims to develop such a model applied to the wheat seed production starting from the study of the specialized literature and using empirical methods. The analysis covers 2016–2020. The main objective of the study is the combination of the information from the observational study to obtain the smart decision model. The study results in the smart model of managerial decision, which represents a real necessity for managers, considering the challenges to which they are subjected. The proposed model in the paper can be used for all types of seeds across the EU and not only. The implementation of the present study by the authors validates the proposed model.

On the structure of multifactor optimal portfolio strategies

2018 ◽  
Vol 24 (3) ◽  
pp. 1043-1058
Author(s):  
Nikolai Dokuchaev
Keyword(s):  
Mutual Funds ◽  
Portfolio Selection ◽  
Optimal Strategies ◽  
Optimal Portfolio ◽  
Performance Criteria ◽  
Value Functions ◽  
Portfolio Strategies ◽  
Optimal Portfolio Selection ◽  
Admissible Strategies ◽  
Hamilton Jacobi Bellman

The paper studies problem of optimal portfolio selection. It is shown that, under some mild conditions, near optimal strategies for investors with different performance criteria can be constructed using a limited number of fixed processes (mutual funds), for a market with a larger number of available risky stocks. This implies dimension reduction for the optimal portfolio selection problem: all rational investors may achieve optimality using the same mutual funds plus a saving account. This result is obtained under mild restrictions for the utility functions without any assumptions on regularity of the value function. The proof is based on the method of dynamic programming applied indirectly to some convenient approximations of the original problem that ensure certain regularity of the value functions. To overcome technical difficulties, we use special time dependent and random constraints for admissible strategies such that the corresponding HJB (Hamilton–Jacobi–Bellman) equation admits “almost explicit” solutions generating near optimal admissible strategies featuring sufficient regularity and integrability.

scholarly journals Strategy under Uncertainty: Empirical Evidence from Swedish Companies Operating in Russia

2016 ◽  
Vol 11 (5) ◽  
pp. 44 ◽  
Author(s):  
Olga Golubeva
Keyword(s):  
Strategic Management ◽  
Empirical Data ◽  
Economic Recession ◽  
Risk Averse ◽  
Expansion Strategy ◽  
Internationalization Theory ◽  
Growing Strategy ◽  
Better Than ◽  
The Eu ◽  
Risk Concept

The objective of this paper is to describe and explain company strategies under uncertainty. The study attempts to examine closer interaction between research on strategic management and internationalization theory. Recent escalation of conflict between Russia and the EU/USA in combination with economic recession increased the level of uncertainty. The article explores how this deterioration is reflected in a strategy of Swedish companies operating in Russia. This study builds on the empirical data from a survey conducted in 2015 among 73 Swedish firms. The findings of the study contribute to knowledge regarding diversity in commitments shown by different companies at one particular point of time under the same circumstances. The study reveals a domination of expansion strategy chosen by Swedish firms during the current escalation of uncertainty in Russia. A growing strategy under uncertainty has seldom been reported and analyzed by scholars. The study demonstrated that uncertainty is not only a threat to companies operating on the market, but can lead to expanding strategies attempting to exploit the opportunities that uncertainty might offer. Appraising the risk concept, the study provides implications for companies’ managers on the importance of a commitment decision to face the deterioration caused by the uncertainty. Empirical data from this study also suggest that uncertainty is handled by companies better than one might expect. The article questions whether companies and managers are really risk-averse in their behaviour.

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