Abstract
Rules of thumb play an important role in making investment decisions. This study gives the rule of a thumb/heuristic known as “Pleonexia rule” based on the trait of greed of an investor. The heuristic in the paper is developed using the Upper partial moment (UPM) ratio, which is based on upside risk only, nonrestrictive to normal distribution and risk-taking and risk-neutral investors can be accommodated. Portfolios are formed by using the monthly prices taken from Pakistan Stock Exchange for the period from Dec 1999 to June 2018. Two staged methodology is proposed for the development and empirical testing of the Pleonexia rule. At first stage forecasted the probabilities to know whether it is possible to develop such type of rule or not. At second stage the Pleonexia rule is developed and tested by using the probabilities. The results reveal that on average there are above 90% chances that the investors get minimum returns or gains by meeting the benchmark which is PSX-100 index. Moreover, greed is not rewarded because there is less probability of getting gains higher than the optimal level. These results are better for the developing countries like Pakistan
Usman Ayub, Attayah Shafique, Muhammad Zakaria, Imran Abbas Jadoon, Muhammad Tahir. (2020) IS GREED REWARDED? DEVELOPING HEURISTICS FOR GREEDY INVESTORS USING UPPER PARTIAL MOMENTS, International Journal of Management Research and Emerging Sciences, Volume 10, Issue 4.
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