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Putting the Aumann–Serrano Riskiness Index to work

Putting the Aumann–Serrano Riskiness Index to work The purpose of this study is to estimate the convergence order of the Aumann–Serrano Riskiness Index.Design/methodology/approachThis study uses the equivalent relation between the Aumann–Serrano Riskiness Index and the moment generating function and aggregately compares between each two statistical moments for statistical significance. Thus, this study enables to find the convergence order of the index to its stable value.FindingsThis study finds that the first-best estimation of the Aumann–Serrano Riskiness Index is reached in no less than its seventh statistical moment. However, this study also finds that its second-best approximation could be achieved with its second statistical moment.Research limitations/implicationsThe implications of this research support the standard deviation as a statistically sufficient approximation of Aumann–Serrano Riskiness Index, thus strengthening the CAPM methodology for asset pricing in the financial markets.Originality/valueThis research sheds a new light, both in theory and in practice, on understanding of the risk’s structure, as it may improve accuracy of asset pricing. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Accounting and Finance Emerald Publishing

Putting the Aumann–Serrano Riskiness Index to work

Nisani, Doron; Shelef, Amit; David, Or
Review of Accounting and Finance , Volume 22 (1): 39 – Jan 25, 2023
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References (56)

Publisher
Emerald Publishing
Copyright
© Emerald Group Publishing Limited
ISSN
1475-7702
eISSN
1475-7702
DOI
10.1108/raf-04-2022-0134
Publisher site
See Article on Publisher Site

Abstract

The purpose of this study is to estimate the convergence order of the Aumann–Serrano Riskiness Index.Design/methodology/approachThis study uses the equivalent relation between the Aumann–Serrano Riskiness Index and the moment generating function and aggregately compares between each two statistical moments for statistical significance. Thus, this study enables to find the convergence order of the index to its stable value.FindingsThis study finds that the first-best estimation of the Aumann–Serrano Riskiness Index is reached in no less than its seventh statistical moment. However, this study also finds that its second-best approximation could be achieved with its second statistical moment.Research limitations/implicationsThe implications of this research support the standard deviation as a statistically sufficient approximation of Aumann–Serrano Riskiness Index, thus strengthening the CAPM methodology for asset pricing in the financial markets.Originality/valueThis research sheds a new light, both in theory and in practice, on understanding of the risk’s structure, as it may improve accuracy of asset pricing.

Journal

Review of Accounting and Finance – Emerald Publishing

Published: Jan 25, 2023

Keywords: Aumann–Serrano Riskiness Index; Capital asset pricing model; Coherent risk measure; Portfolio choice puzzle; Stochastic dominance rules; Von Neumann–Morgenstern preference relation; Risk management; Financial markets; Asset pricing; Capital market; Portfolio theory

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