An empirical study on the characteristics of high risk aversion behavior in portfolio decision making using regression model

Research output: Contribution to journalArticle

Abstract

Background: Human behavior exhibits different level of risk aversion in decision making process. In portfolio selection, human with high risk aversion try to avoid risk of loss in stock market. Therefore, they aim to minimize the risk of loss rather than maximize the return. Index tracking is portfolio decision making to generate similar return with the benchmark index return. Human with high risk aversion desires to minimize the risk of loss in index tracking. Objective: The objective of this paper is to study the characteristics of high risk aversion behavior in portfolio selection for index tracking problem. The portfolio selection is developed for high risk aversion behavior using decision making model with regression approach in Malaysia. In this study, Kuala Lumpur Composite Index is the benchmark index to be tracked. Minimum number of stocks is determined to track the benchmark index which consists of 100 stocks. Besides that, minimum risk of loss is determined for the human behavior with high risk aversion. Results: The results of this study indicate that there are only 33 stocks selected in the portfolio to track the benchmark index which consists of 100 stocks with minimum risk 0.3201%. This implies that minimum 33% of benchmark index components are required in index tracking for high risk aversion behavior in Malaysia. Conclusion: Human with high risk aversion is able to track the benchmark index in Malaysia using the decision making model with regression approach. The significance of this study is to find out the portfolio selection for high risk aversion behavior is able to generate higher return than benchmark index return with only selecting 33% of index components.

Original languageEnglish
Pages (from-to)17-20
Number of pages4
JournalAdvances in Environmental Biology
Volume9
Issue number7
Publication statusPublished - 1 Jan 2015

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Risk-Taking
Benchmarking
decision making
Decision Making
Malaysia
human behavior
decision support systems
index
stock exchange
stock market
selection index

Keywords

  • High risk aversion
  • Human behaviour
  • Index tracking
  • Regression model and portfolio selection
  • Return
  • Risk

ASJC Scopus subject areas

  • Environmental Science(all)
  • Agricultural and Biological Sciences(all)

Cite this

@article{5efd1829f1d548f3b5edd3d06d63e792,
title = "An empirical study on the characteristics of high risk aversion behavior in portfolio decision making using regression model",
abstract = "Background: Human behavior exhibits different level of risk aversion in decision making process. In portfolio selection, human with high risk aversion try to avoid risk of loss in stock market. Therefore, they aim to minimize the risk of loss rather than maximize the return. Index tracking is portfolio decision making to generate similar return with the benchmark index return. Human with high risk aversion desires to minimize the risk of loss in index tracking. Objective: The objective of this paper is to study the characteristics of high risk aversion behavior in portfolio selection for index tracking problem. The portfolio selection is developed for high risk aversion behavior using decision making model with regression approach in Malaysia. In this study, Kuala Lumpur Composite Index is the benchmark index to be tracked. Minimum number of stocks is determined to track the benchmark index which consists of 100 stocks. Besides that, minimum risk of loss is determined for the human behavior with high risk aversion. Results: The results of this study indicate that there are only 33 stocks selected in the portfolio to track the benchmark index which consists of 100 stocks with minimum risk 0.3201{\%}. This implies that minimum 33{\%} of benchmark index components are required in index tracking for high risk aversion behavior in Malaysia. Conclusion: Human with high risk aversion is able to track the benchmark index in Malaysia using the decision making model with regression approach. The significance of this study is to find out the portfolio selection for high risk aversion behavior is able to generate higher return than benchmark index return with only selecting 33{\%} of index components.",
keywords = "High risk aversion, Human behaviour, Index tracking, Regression model and portfolio selection, Return, Risk",
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N2 - Background: Human behavior exhibits different level of risk aversion in decision making process. In portfolio selection, human with high risk aversion try to avoid risk of loss in stock market. Therefore, they aim to minimize the risk of loss rather than maximize the return. Index tracking is portfolio decision making to generate similar return with the benchmark index return. Human with high risk aversion desires to minimize the risk of loss in index tracking. Objective: The objective of this paper is to study the characteristics of high risk aversion behavior in portfolio selection for index tracking problem. The portfolio selection is developed for high risk aversion behavior using decision making model with regression approach in Malaysia. In this study, Kuala Lumpur Composite Index is the benchmark index to be tracked. Minimum number of stocks is determined to track the benchmark index which consists of 100 stocks. Besides that, minimum risk of loss is determined for the human behavior with high risk aversion. Results: The results of this study indicate that there are only 33 stocks selected in the portfolio to track the benchmark index which consists of 100 stocks with minimum risk 0.3201%. This implies that minimum 33% of benchmark index components are required in index tracking for high risk aversion behavior in Malaysia. Conclusion: Human with high risk aversion is able to track the benchmark index in Malaysia using the decision making model with regression approach. The significance of this study is to find out the portfolio selection for high risk aversion behavior is able to generate higher return than benchmark index return with only selecting 33% of index components.

AB - Background: Human behavior exhibits different level of risk aversion in decision making process. In portfolio selection, human with high risk aversion try to avoid risk of loss in stock market. Therefore, they aim to minimize the risk of loss rather than maximize the return. Index tracking is portfolio decision making to generate similar return with the benchmark index return. Human with high risk aversion desires to minimize the risk of loss in index tracking. Objective: The objective of this paper is to study the characteristics of high risk aversion behavior in portfolio selection for index tracking problem. The portfolio selection is developed for high risk aversion behavior using decision making model with regression approach in Malaysia. In this study, Kuala Lumpur Composite Index is the benchmark index to be tracked. Minimum number of stocks is determined to track the benchmark index which consists of 100 stocks. Besides that, minimum risk of loss is determined for the human behavior with high risk aversion. Results: The results of this study indicate that there are only 33 stocks selected in the portfolio to track the benchmark index which consists of 100 stocks with minimum risk 0.3201%. This implies that minimum 33% of benchmark index components are required in index tracking for high risk aversion behavior in Malaysia. Conclusion: Human with high risk aversion is able to track the benchmark index in Malaysia using the decision making model with regression approach. The significance of this study is to find out the portfolio selection for high risk aversion behavior is able to generate higher return than benchmark index return with only selecting 33% of index components.

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