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Search Results: 1 - 10 of 5416 matches for " Wing-Keung Wong "
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Stochastic dominance theory for location-scale family
Wing-Keung Wong
Advances in Decision Sciences , 2006, DOI: 10.1155/jamds/2006/82049
Abstract: Meyer (1987) extended the theory of mean-variance criterion to include the comparison among distributions that differ only by location and scale parameters and to include general utility functions with only convexity or concavity restrictions. In this paper, we make some comments on Meyer's paper and extend the results from Tobin (1958) that the indifference curve is convex upwards for risk averters, concave downwards for risk lovers, and horizontal for risk neutral investors to include the general conditions stated by Meyer (1987). We also provide an alternative proof for the theorem. Levy (1989) extended Meyer's results by introducing some inequality relationships between the stochastic-dominance and the mean-variance efficient sets. In this paper, we comment on Levy's findings and show that these relationships do not hold in certain situations. We further develop some properties among the first- and second-degree stochastic dominance efficient sets and the mean-variance efficient set.
Banking Firm, Risk of Investment and Derivatives  [PDF]
Udo Broll, Wing-Keung Wong, Mojia Wu
Technology and Investment (TI) , 2011, DOI: 10.4236/ti.2011.23023
Abstract: The economic environment for financial institutions has become increasingly risky. Hence these institutions must find ways to manage risk of which one of the most important forms is credit risk. In this paper we use the mean-variance (mean-standard deviation) approach to examine a banking firm investing in risky assets and hedging opportunities. The mean-standard deviation framework can be used because our hedging model satisfies a scale and location condition. The focus of this study is on how credit risk affects optimal bank investment in the loan and deposit market when derivatives are available. Furthermore we explore the relationship among the first- and second-degree stochastic dominance efficient sets and the mean-variance efficient set.
The Positive Feedback Advantages of Combining Buying and Investing  [PDF]
Vic Norris, Laura Norris, Wing-Keung Wong
Theoretical Economics Letters (TEL) , 2015, DOI: 10.4236/tel.2015.55077
Abstract: A substantial proportion of the world’s population is dissatisfied with the way the global market-based economy operates. In particular, the desire of consumers to pay as little as possible for a product and the desire of producers and investors to make as much profit as possible, lead to actions that drive down wages, undermine social welfare and damage the environment. To counteract this, we propose that the millions of consumers who wish to change the market adopt a combined buying and investing strategy that we term buyvesting in which “ethical” would become the new “profitable”. We use a learning program to illustrate the buyvesting proposal, which we discuss with respect to the concepts of competitive coherence and shared reality theory.
Stochastic Control for Asset Management  [PDF]
James J. Kung, Wing-Keung Wong, E-Ching Wu
Journal of Mathematical Finance (JMF) , 2013, DOI: 10.4236/jmf.2013.31005

An investor is often faced with the investment situation in which he/she has to decide how to allocate his/her limited funds optimally among different assets to maximize his/her expected utility over the holding period. To this end, this study sets up a dynamic model driven by three assets to characterize the stochastic nature of the securities market and uses stochastic control to derive an explicit formula for the optimal fraction invested in each of the three assets for an investor with a power utility and a holding period of 10 years. Using estimated parameter values as inputs and implicit finite difference method, we determine numerically the optimal percentages invested in the three assets at each time over the holding period for both less risk-averse and more risk-averse investors.


Segregation and Integration: A Study of the Behaviors of Investors with Extended Value Functions
Martin Egozcue,Wing-Keung Wong
Advances in Decision Sciences , 2010, DOI: 10.1155/2010/302895
Abstract: This paper extends prospect theory, mental accounting, and the hedonic editing model by developing an analytical theory to explain the behavior of investors with extended value functions in segregating or integrating multiple outcomes when evaluating mental accounting. 1. Introduction and Literature Review 1.1. Prospect Theory and Mental Accounting A central tenet within economics is that individuals maximize their expected utilities [1] in which all outcomes are assumed to be integrated with current wealth. Kahneman and Tversky [2] propose prospect theory to reflect the subjective desirability of different decision outcomes and to provide possible explanations for behavior of investors who maximize over value functions instead of utility functions. Let be the set of extended real numbers and in which and . Rather than defining over levels of wealth, the value function is defined over gains and losses relative to a reference point (status quo) with , satisfying where is the derivative of . The value function is a psychophysical function to reflect the anticipated happiness or sadness associated with each potential decision outcome. Without loss of generality, we assume the status quo to be zero. Thus, we refer to positive outcomes as gains and negative outcomes as losses. In this situation, investors with the value functions are risk averse for gains but risk seeking for losses. Since the value function is concave in the positive domain and convex for the negative domain, it shows declining sensitivity in both gains and losses. Kahneman [3] comments that evaluating an object from a reference point of “having” (“not having”) implies a negative (positive) change of “giving something up” (“getting something”) upon relinquishing (receiving) the object. Many functions have been proposed as value functions; see, for example, Stott [4]. Kahneman and Tversky [2] first propose the following value function: Al-Nowaihi et al. [5] show that under preference for homogeneity and loss aversion, the value function will have a power form with identical powers for gains and losses. Tversky and Kahneman [6] estimate the parameters and identify and as median values whereas Abdellaoui [7] estimates a power value function varying in the range . The parameter in (1.2) describes the degree of loss aversion and and measure the degree of diminishing sensitivity. Nonetheless, Levy and Wiener [8], M. Levy and H. Levy [9, 10], Wong, and Chan [11] and others suggest extending the value function in (1.2) without restricting to be greater than one. In this paper, we first study the
Robust estimation in Capital Asset Pricing Model
Wing-Keung Wong,Guorui Bian
Advances in Decision Sciences , 2000, DOI: 10.1155/s1173912600000043
Abstract: Bian and Dickey (1996) developed a robust Bayesian estimator for the vector of regression coefficients using a Cauchy-type g-prior. This estimator is an adaptive weighted average of the least squares estimator and the prior location, and is of great robustness with respect to at-tailed sample distribution. In this paper, we introduce the robust Bayesian estimator to the estimation of the Capital Asset Pricing Model (CAPM) in which the distribution of the error component is well-known to be flat-tailed. To support our proposal, we apply both the robust Bayesian estimator and the least squares estimator in the simulation of the CAPM and in the analysis of the CAPM for US annual and monthly stock returns. Our simulation results show that the Bayesian estimator is robust and superior to the least squares estimator when the CAPM is contaminated by large normal and/or non-normal disturbances, especially by Cauchy disturbances. In our empirical study, we find that the robust Bayesian estimate is uniformly more efficient than the least squares estimate in terms of the relative efficiency of one-step ahead forecast mean square error, especially for small samples.
New variance ratio tests to identify random walk from the general mean reversion model
Kin Lam,May Chun Mei Wong,Wing-Keung Wong
Advances in Decision Sciences , 2006, DOI: 10.1155/jamds/2006/12314
Abstract: We develop some properties on the autocorrelation of the k-period returns for the general mean reversion (GMR) process in which the stationary component is not restricted to the AR(1) process but takes the form of a general ARMA process. We then derive some properties of the GMR process and three new nonparametric tests comparing the relative variability of returns over different horizons to validate the GMR process as an alternative to random walk. We further examine the asymptotic properties of these tests which can then be applied to identify random walk models from the GMR processes.
Good Approximation of Exponential Utility Function for Optimal Futures Hedging  [PDF]
Xu Guo, Donald Lien, Wing-Keung Wong
Journal of Mathematical Finance (JMF) , 2016, DOI: 10.4236/jmf.2016.63036
Abstract: Within the optimal production and hedging decision framework, Lien compares the exponential utility function with its second order approximation under the normality distribution assumption. In this paper, we first extend the result further by comparing the exponential utility function with a 2n-order approximation for any integer n. We then propose an approach with illustration to find the smallest n that provides a good approximation.
The Impacts of Joint Energy and Output Prices Uncertainties in a Mean-Variance Framework  [PDF]
Moawia Alghalith, Cuizhen Niu, Wing-Keung Wong
Theoretical Economics Letters (TEL) , 2017, DOI: 10.4236/tel.2017.75075
Abstract: In this paper, we analyze the impacts of joint energy and output prices uncertainties on the inputs demands in a mean-variance framework. We find that the concepts of elasticities and variance vulnerability play important roles in the comparative statics analysis. If the firms preferences exhibit variance vulnerability, increasing the variance of energy price will necessarily cause the risk averse firm to decrease the demands for the non-risky inputs. Further, we investigate two special cases with only uncertain energy price and only uncertain output price. In the case with only uncertain energy price, we find that the uncertain energy price has no impact on the demands for the non-risky inputs. Besides, if the firms preferences exhibit variance vulnerability, increasing the variance of energy price will surely cause the risk averse firm to decrease the demand for energy.
The relationship between stock markets of major developed countries and Asian emerging markets
Wing-Keung Wong,Jack Penm,Richard Deane Terrell,Karen Yann Ching Lim
Advances in Decision Sciences , 2004, DOI: 10.1155/s1173912604000136
Abstract: With the emergence of new capital markets and liberalization of stock markets in recent years, there has been an increase in investors' interest in international diversification. This is so because international diversification allows investors to have a larger basket of foreign securities to choose from as part of their portfolio assets, so as to enhance the reward-to-volatility ratio. This benefit would be limited if national equity markets tend to move together in the long run. This paper thus studies the issue of co-movement between stock markets in major developed countries and those in Asian emerging markets using the concept of cointegration. We find that there is co-movement between some of the developed and emerging markets, but some emerging markets do differ from the developed markets with which they share a long-run equilibrium relationship. Furthermore, it has been observed that there has been increasing interdependence between most of the developed and emerging markets since the 1987 Stock Market Crash. This interdependence intensified after the 1997 Asian Financial Crisis. With this phenomenon of increasing co-movement between developed and emerging stock markets, the benefits of international diversification become limited.
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