New Risk Management Findings from Prince Sultan University Described (Does the Adaptive Market Hypothesis Reconcile the Behavioral Finance and the Efficient Market Hypothesis?): Insurance – Risk Management

2022 OCT 11 (NewsRx) -- By a News Reporter-Staff News Editor at Insurance Daily News -- Investigators publish new report on risk management. According to news reporting originating from Riyadh, Saudi Arabia, by NewsRx correspondents, research stated, “This study aims to test the adaptive market hypothesis by using the myopic behavior of investors as a new proxy.”

The news journalists obtained a quote from the research from Prince Sultan University: “The data have been taken from New York Stock Exchange from December 1994 to December 2020. Following this collection of data, the companies’ stock prices were distributed into six different portfolios based on size, investment, a book-to-market value, and operating profit. Ordinal logistic regression was used to calculate the probability of recovery of losses after experiencing a decline in the market. As part of the robustness analysis, this study replaces the Sharpe ratio with a Lower Partial Moment ratio. Most of the results for the Sharpe ratio and Lower Partial Moment ratio are similar. During 1995-1999, 2002-2006, and 2010-2020, the investors have not shown myopic behavior towards losses, but from 2000-2001 and 2007-2009 the investors exhibited myopic characteristics.”

According to the news reporters, the research concluded: “Furthermore, as investors move between myopic and non-myopic loss aversion, the study reports that the US market is both efficient and inefficient at various points in time, following the adaptive market hypothesis. Thus, such a finding could act as a basis for future investment models by adapting traditional models or by building and contributing to the development of new ones.”

For more information on this research see: Does the Adaptive Market Hypothesis Reconcile the Behavioral Finance and the Efficient Market Hypothesis?. Risks, 2022,10(168):168. (Risks - http://www.mdpi.com/journal/risks). The publisher for Risks is MDPI AG.

A free version of this journal article is available at https://doi.org/10.3390/risks10090168.

Our news editors report that additional information may be obtained by contacting Umara Noreen, College of Business Administration, Prince Sultan University, Riyadh 11586, Saudi Arabia. Additional authors for this research include Attayah Shafique, Usman Ayub, Syed Kashif Saeed.

(Our reports deliver fact-based news of research and discoveries from around the world.)