Central Moments, Stochastic Dominance, Moment Rule, and Diversification

Chan, Raymond H.; Chow, Sheung Chi; Guo, Xu; Wong, Wing‐Keung

doi:10.2139/ssrn.3431903

Cited by 4 publications

(2 citation statements)

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“…This paper investigates the stock exchange merger of NASDAQ with OMX and examines the sustainability of co-movement between the stock markets of OMX and NASDAQ, that could affect investors' profit and decision making in their investment, changing their trading strategies, and could affect market efficiency and create arbitrage opportunity, anomaly, and additional risk. Thus, extension of our paper could include studying co-movement of other series [55,[58][59][60][61][62][63][64][65][66][67][68][69][70][71], co-movement of using different trading strategies [47,[72][73][74][75], co-movement of making use of different anomalies [76][77][78], co-movement of investing in different markets [60,64,[79][80][81][82], sustainability of making use of different market conditions [66,83], and co-movement in different types of risk [84][85][86][87][88][89][90][91][92][93][94][95]…”

Section: Discussionmentioning

confidence: 99%

“…We employ it as a measure to compare portfolios before and after the merger. Readers may refer to the following authors for more information: Chow et al [54] on the Omega ratio and stochastic dominance; Chan et al [55] for the relationship between stochastic dominance and the extension of the mean-variance rule; Ma and Wong [56] Niu, Wong, and Xu [57], Guo, Niu, and Wong [58], and others for the relationship between stochastic dominance and other risk measures.…”

Section: Mean-variance Analysis and Mean-omega Analysismentioning

confidence: 99%

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Could Mergers Become More Sustainable? A Study of the Stock Exchange Mergers of NASDAQ and OMX

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This study investigates whether the merger of NASDAQ and OMX could reduce the portfolio diversification possibilities for stock market investors and whether it is necessary to implement national policies and international treaties for the sustainable development of financial markets. Our study is very important because some players in the stock markets have not yet realized that stock exchanges, during the last decades, have moved from government-owned or mutually-owned organizations to private companies, and, with several mergers having occurred, the market is tending gradually to behave like a monopoly. From our analysis, we conclude that increased volatility and reduced diversification opportunities are the results of an increase in the long-run comovement between each pair of indices in Nordic and Baltic stock markets (Denmark, Sweden, Finland, Estonia, Latvia, and Lithuania) and NASDAQ after the merger. We also find that the merger tends to improve the error-correction mechanism for NASDAQ so that it Granger-causes OMX, but OMX loses predictive power on NASDAQ after the merger. We conclude that the merger of NASDAQ and OMX reduces the diversification possibilities for stock market investors and our findings provide evidence to support the argument that it is important to implement national policies and international treaties for the sustainable development of financial markets.

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Section: Discussionmentioning

confidence: 99%

Section: Mean-variance Analysis and Mean-omega Analysismentioning

confidence: 99%

Could Mergers Become More Sustainable? A Study of the Stock Exchange Mergers of NASDAQ and OMX

et al. 2020

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Review on behavioral economics and behavioral finance

Wong

2020

SEF

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Purpose This paper aims to give a brief review on behavioral economics and behavioral finance and discusses some of the previous research on agents' utility functions, applicable risk measures, diversification strategies and portfolio optimization. Design/methodology/approach The authors also cover related disciplines such as trading rules, contagion and various econometric aspects. Findings While scholars could first develop theoretical models in behavioral economics and behavioral finance, they subsequently may develop corresponding statistical and econometric models, this finally includes simulation studies to examine whether the estimators or statistics have good power and size. This all helps us to better understand financial and economic decision-making from a descriptive standpoint. Originality/value The research paper is original.

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Review on Efficiency and Anomalies in Stock Markets

Woo

Mai²,

McAleer

et al. 2020

Economies

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The efficient-market hypothesis (EMH) is one of the most important economic and financial hypotheses that have been tested over the past century. Due to many abnormal phenomena and conflicting evidence, otherwise known as anomalies against EMH, some academics have questioned whether EMH is valid, and pointed out that the financial literature has substantial evidence of anomalies, so that many theories have been developed to explain some anomalies. To address the issue, this paper reviews the theory and literature on market efficiency and market anomalies. We give a brief review on market efficiency and clearly define the concept of market efficiency and the EMH. We discuss some efforts that challenge the EMH. We review different market anomalies and different theories of Behavioral Finance that could be used to explain such market anomalies. This review is useful to academics for developing cutting-edge treatments of financial theory that EMH, anomalies, and Behavioral Finance underlie. The review is also beneficial to investors for making choices of investment products and strategies that suit their risk preferences and behavioral traits predicted from behavioral models. Finally, when EMH, anomalies and Behavioral Finance are used to explain the impacts of investor behavior on stock price movements, it is invaluable to policy makers, when reviewing their policies, to avoid excessive fluctuations in stock markets.

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Central Moments, Stochastic Dominance, Moment Rule, and Diversification

Cited by 4 publications

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Could Mergers Become More Sustainable? A Study of the Stock Exchange Mergers of NASDAQ and OMX

Could Mergers Become More Sustainable? A Study of the Stock Exchange Mergers of NASDAQ and OMX

Review on behavioral economics and behavioral finance

Review on Efficiency and Anomalies in Stock Markets

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