Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

Does prospect theory explain Bowman's paradox in Asian emerging markets?

Does prospect theory explain Bowman's paradox in Asian emerging markets? This study aims to extend Bowman's risk–return paradox to Asian emerging markets and explain its causes under the prospect theory.Design/methodology/approachThe study is conducted on a cross-sectional sample of 4,609 firms across nine Asian emerging countries. The two stage least squares (2SLS) estimation technique is used to evaluate the three objectives of the study, i.e. Bowman's risk–return paradox, significance of firm-specific risk and prospect theory explanation of Bowman's paradox.FindingsThe authors challenge the two basic financial economics arguments that higher risk is rewarded with higher return, and firm-specific risk is diversifiable. The empirical findings confirm the negative impact of firm-specific and systematic risk on firm return, thus, corroborates the Bowman's explanation of risk–return trade-off. However, the authors did not find empirical evidence to support prospect theory's explanations of Bowman’s paradox in Asian emerging markets.Originality/valueA holistic approach is adopted to analyze the various aspects of Bowman's paradox and its causes for the same time period, variables and sample. The authors also rectified several methodological limitations observed in previous studies, i.e. the use of same proxies for firm return and risk, endogeneity and survivorship issues. Furthermore, the findings of this study will enable managers to formulate critical viewpoint on firm-specific risk and systematic risk and take informed strategic decisions regarding optimum utilization of their firm's key resources in Asian emerging markets. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Managerial Finance Emerald Publishing

Does prospect theory explain Bowman's paradox in Asian emerging markets?

Loading next page...
 
/lp/emerald-publishing/does-prospect-theory-explain-bowman-s-paradox-in-asian-emerging-8EZeh0V20R

References (111)

Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
0307-4358
DOI
10.1108/mf-11-2021-0544
Publisher site
See Article on Publisher Site

Abstract

This study aims to extend Bowman's risk–return paradox to Asian emerging markets and explain its causes under the prospect theory.Design/methodology/approachThe study is conducted on a cross-sectional sample of 4,609 firms across nine Asian emerging countries. The two stage least squares (2SLS) estimation technique is used to evaluate the three objectives of the study, i.e. Bowman's risk–return paradox, significance of firm-specific risk and prospect theory explanation of Bowman's paradox.FindingsThe authors challenge the two basic financial economics arguments that higher risk is rewarded with higher return, and firm-specific risk is diversifiable. The empirical findings confirm the negative impact of firm-specific and systematic risk on firm return, thus, corroborates the Bowman's explanation of risk–return trade-off. However, the authors did not find empirical evidence to support prospect theory's explanations of Bowman’s paradox in Asian emerging markets.Originality/valueA holistic approach is adopted to analyze the various aspects of Bowman's paradox and its causes for the same time period, variables and sample. The authors also rectified several methodological limitations observed in previous studies, i.e. the use of same proxies for firm return and risk, endogeneity and survivorship issues. Furthermore, the findings of this study will enable managers to formulate critical viewpoint on firm-specific risk and systematic risk and take informed strategic decisions regarding optimum utilization of their firm's key resources in Asian emerging markets.

Journal

Managerial FinanceEmerald Publishing

Published: Jun 7, 2022

Keywords: Risk and return; Residual risk; Market risk; Stakeholders; Prospect theory; CAPM

There are no references for this article.