G.T. Post (Thierry)
http://repub.eur.nl/ppl/242/
List of Publicationsenhttp://repub.eur.nl/logo.jpg
http://repub.eur.nl/
RePub, Erasmus University RepositoryDownside risk aversion, fixed-income exposure, and the value premium puzzle
http://repub.eur.nl/pub/37428/
Sat, 01 Dec 2012 00:00:01 GMT<div>G. Baltussen</div><div>G.T. Post</div><div>P. van Vliet</div>
The value premium is relatively small for investors with a material fixed-income exposure, such as insurance companies and pension funds, especially when they are downside-risk-averse. Value stocks are less attractive to these investors because they offer a relatively poor hedge against poor bond returns. This result arises for plausible, medium-term evaluation horizons of around one year. Our findings cast doubt on the practical relevance of the value premium for these investors and reiterate the importance of the choice of the relevant test portfolio, risk measure and investment horizon in empirical tests of market portfolio efficiency. Random incentive systems in a dynamic choice experiment
http://repub.eur.nl/pub/34914/
Sat, 01 Sep 2012 00:00:01 GMT<div>G. Baltussen</div><div>G.T. Post</div><div>M.J. van den Assem</div><div>P.P. Wakker</div>
Experiments frequently use a random incentive system (RIS), where only tasks that are randomly selected at the end of the experiment are for real. The most common type pays every subject one out of her multiple tasks (within-subjects randomization). Recently, another type has become popular, where a subset of subjects is randomly selected, and only these subjects receive one real payment (between-subjects randomization). In earlier tests with simple, static tasks, RISs performed well. The present study investigates RISs in a more complex, dynamic choice experiment. We find that between-subjects randomization reduces risk aversion. While within-subjects randomization delivers unbiased measurements of risk aversion, it does not eliminate carry-over effects from previous tasks. Both types generate an increase in subjects' error rates. These results suggest that caution is warranted when applying RISs to more complex and dynamic tasks. On the performance of emerging market equity mutual funds
http://repub.eur.nl/pub/23497/
Thu, 01 Sep 2011 00:00:01 GMT<div>J.J. Huij</div><div>G.T. Post</div>
We document persistence in the performance of emerging market equity funds and find several notable differences compared to US equity funds. First, the contribution of winner funds to the return spread between winner and losers is substantially larger for emerging market funds. Second, only a small portion of the return spread between winners and losers can be attributed to momentum effects in emerging markets. Third, winner funds in emerging markets generate returns that are sufficiently large enough to cover their expenses. Overall, our findings suggest that emerging market funds generally display better performance than US funds.Sorting out Downside Beta
http://repub.eur.nl/pub/14843/
Wed, 18 Feb 2009 00:00:01 GMT<div>G.T. Post</div><div>P. van Vliet</div><div>S.D. Lansdorp</div>
Downside risk, when properly defined and estimated, helps to explain the cross-section of US stock returns. Sorting stocks by a proper estimate of downside market beta leads to a substantially larger cross-sectional spread in average returns than sorting on regular market beta. This result arises despite the fact that downside beta is based on fewer return observations and therefore is more difficult to estimate and predict. The explanatory power of downside risk remains after controlling for other stock characteristics, including firm-level size, value and momentum.Risk aversion and skewness preference
http://repub.eur.nl/pub/12607/
Tue, 01 Jul 2008 00:00:01 GMT<div>G.T. Post</div><div>P. van Vliet</div><div>H. Levy</div>
Empirically, co-skewness of asset returns seems to explain a substantial part of the cross-sectional variation of mean return not explained by beta. This finding is typically interpreted in terms of a risk averse representative investor with a cubic utility function. This paper questions this interpretation. We show that the empirical tests fail to impose risk aversion and the implied utility function takes an inverse S-shape. Unfortunately, the first-order conditions are not sufficient to guarantee that the market portfolio is the global maximum for this utility function, and our results suggest that the market portfolio is more likely to represent the global minimum. In addition, if we do impose risk aversion, then co-skewness has minimal explanatory power.Second-Order Stochastic Dominance, Reward-Risk Portfolio Selection, and the CAPM
http://repub.eur.nl/pub/13924/
Sun, 01 Jun 2008 00:00:01 GMT<div>G.T. Post</div><div>E.G. De Georgi</div>
Starting from the reward-risk model for portfolio selection introduced in De Giorgi (2005), we derive the reward-risk Capital Asset Pricing Model (CAPM) analogously to the classical mean-variance CAPM. In contrast to the mean-variance model, reward-risk portfolio selection arises from an axiomatic definition of reward and risk measures based on a few basic principles, including consistency with second-order stochastic dominance. With complete markets, we show that at any financial market equilibrium, reward-risk investors' optimal allocations are comonotonic and, therefore, our model reduces to a representative investor model. Moreover, the pricing kernel is an explicitly given, non-increasing function of the market portfolio return, reflecting the representative investor's risk attitude. Finally, an empirical application shows that the reward-risk CAPM captures the cross section of U.S. stock returns better than the mean-variance CAPM does.Loss Aversion with a State-dependent Reference Point
http://repub.eur.nl/pub/14061/
Wed, 30 Apr 2008 00:00:01 GMT<div>E.G. De Georgi</div><div>G.T. Post</div>
This study investigates loss aversion when the reference point is state-dependent. Using a state-dependent structure, prospects are more attractive if they depend positively on the reference point and are less attractive in case of negative dependence. In addition, the structure is neutral in the sense that it avoids an inherent aversion to risky prospects and yields no loss when the prospect and the reference point are the same. Related to this, the preferred personal equilibrium equals the optimal consumption solution when the reference point is selected completely endogenously. Given that loss aversion is widespread, we conclude that the reference point generally includes an important exogenously fixed component.On the Dual Test for SSD Efficiency: With an Application to Momentum Investment Strategies
http://repub.eur.nl/pub/13637/
Sun, 16 Mar 2008 00:00:01 GMT<div>G.T. Post</div>
This paper analyzes the dual formulation of Post’s [Post, T., 2003. Empirical tests for stochastic dominance efficiency. Journal of Finance 58, 1905–1932] test for second-order stochastic dominance (SSD) efficiency of a given investment portfolio relative to all possible portfolios formed from set of assets. In contrast to the earlier work, we (1) provide a direct proof for the dual that does not rely on expected utility theory, (2) adhere to the original definition of SSD, (3) phrase in terms of a general polyhedral portfolio possibilities set and (4) construct a SSD dominating benchmark portfolio from the optimal solution. To illustrate the dual SSD test, we apply the test to analyze the effect of short-selling restrictions on the profitability of momentum investment strategies.Deal or No Deal? Decision Making under Risk in a Large-Payoff Game Show
http://repub.eur.nl/pub/14057/
Sat, 01 Mar 2008 00:00:01 GMT<div>G.T. Post</div><div>M.J. van den Assem</div><div>G. Baltussen</div><div>R.H. Thaler</div>
We examine the risky choices of contestants in the popular TV game show "Deal or No Deal" and related classroom experiments. Contrary to the traditional view of expected utility theory, the choices can be explained in large part by previous outcomes experienced during the game. Risk aversion decreases after earlier expectations have been shattered by unfavorable outcomes or surpassed by favorable outcomes. Our results point to reference-dependent choice theories such as prospect theory, and suggest that path-dependence is relevant, even when the choice problems are simple and well defined, and when large real monetary amounts are at stake.Deal or No Deal? Decision Making under Risk in a Large-Payoff Game Show
http://repub.eur.nl/pub/17276/
Sat, 01 Mar 2008 00:00:01 GMT<div>G.T. Post</div><div>M.J. van den Assem</div><div>G. Baltussen</div><div>R.H. Thaler</div>
De ene Euro is de andere niet
http://repub.eur.nl/pub/14060/
Fri, 13 Jul 2007 00:00:01 GMT<div>M.J. van den Assem</div><div>G. Baltussen</div><div>G.T. Post</div>
In de verschillende versies van het televisiespel Deal or No
Deal staan sterk verschillende geldbedragen op het spel.
Vergelijkingen van het risicogedrag binnen en tussen versies
wijzen erop dat risicogedrag sterk wordt bepaald door
eerdere verwachtingen die men heeft van de spelopbrengst.A Nonparametric Efficiency Estimation in Stochastic Environments II: noise-to-signal estimation, finite sample performance and hypothesis testing
http://repub.eur.nl/pub/14063/
Sun, 01 Jul 2007 00:00:01 GMT<div>G.T. Post</div>
This study considers the issues of noise-to-signal estimation, finite sample performance and hypothesis testing for a new nonparametric and stochastic efficiency estimation technique. We apply the technique for analyzing the efficiency of European banks from various regions and with various specializations. The technique seems well suited for this application area because banking inputs and outputs generally are measured with error, the banking production technology is not well-defined and large banking data sets such as BankScope allow for a nonparametric approach.Multivariate Test for Stochastic Dominance efficiency of a Given Portfolio
http://repub.eur.nl/pub/14064/
Fri, 01 Jun 2007 00:00:01 GMT<div>G.T. Post</div><div>P.J.P.M. Versijp</div>
We develop empirical tests for stochastic dominance efficiency of a given investment portfolio relative to all possible portfolios formed from a given set of assets. Our tests use multivariate statistics, which result in superior statistical power properties compared to existing stochastic dominance efficiency tests and increase the comparability with existing mean-variance efficiency tests. Using our tests, we demonstrate that the mean-variance inefficiency of the CRSP all-share index relative to beta-sorted portfolios can be explained by tail risk not captured by variance.Non-Parametric Tests of Productive Efficiency with Errors-in-Variables
http://repub.eur.nl/pub/14062/
Mon, 01 Jan 2007 00:00:01 GMT<div>T. Kuosmanen</div><div>G.T. Post</div><div>S. Scholtes</div>
We develop a non-parametric test of productive efficiency that accounts for errors-in-variables, following the approach of Varian. [1985. Nonparametric analysis of optimizing behavior with measurement error. Journal of Econometrics 30(1/2), 445–458]. The test is based on the general Pareto–Koopmans notion of efficiency, and does not require price data. Statistical inference is based on the sampling distribution of the L∞ norm of errors. The test statistic can be computed using a simple enumeration algorithm. The finite sample properties of the test are analyzed by means of a Monte Carlo simulation using real-world data of large EU commercial banks.Violations of Cumulative Prospect Theory in Mixed Gambles with Moderate Probabilities
http://repub.eur.nl/pub/14065/
Tue, 01 Aug 2006 00:00:01 GMT<div>G. Baltussen</div><div>G.T. Post</div><div>P. van Vliet</div>
In a classroom choice experiment with mixed gambles and moderate probabilities, we find severe violations of cumulative prospect theory (CPT) and of Markowitz stochastic dominance. Our results shed new light on the exchange between Levy and Levy (2002) and Wakker (2003) in this journal.Downside Risk and Asset Pricing
http://repub.eur.nl/pub/14066/
Wed, 01 Mar 2006 00:00:01 GMT<div>G.T. Post</div><div>W.N. van Vliet</div>
We analyze if the value-weighted stock market portfolio is stochastic dominance (SD) efficient relative to benchmark portfolios formed on size, value, and momentum. In the process, we also develop several methodological improvements to the existing tests for SD efficiency. Interestingly, the market portfolio seems third-order SD (TSD) efficient relative to all benchmark sets. By contrast, the market portfolio is inefficient if we replace the TSD criterion with the traditional mean–variance criterion. Combined these results suggest that the mean–variance inefficiency of the market portfolio is caused by the omission of return moments other than variance. Especially downside risk seems to be important for explaining the high average returns of small/value/winner stocks.Deal or No Deal? Decision-making under Risk in a Large-payoff Game Show
http://repub.eur.nl/pub/7230/
Wed, 11 Jan 2006 00:00:01 GMT<div>G.T. Post</div><div>G. Baltussen</div><div>M.J. van den Assem</div>
The popular television game show deal or No Deal offers a unique opportunity for analyzing decision making under risk: it involves very large stakes, simple take-or-leave decisions that require minimal skill or strategy and near-certainty about the probability distribution. Based on a panel data set of the choices of contestants in all game rounds of 53 episodes from Australia and the Netherlands, we find an average Pratt-Arrow relative risk aversion (RRA) between roughly 1 and 2 for initial wealth levels between 0 and 50,000. The RRA differs substantially across the contestants and some even exhibit risk seeking behavior. The cross-sectional differences in RRA can be explained in large part by the previous outcomes experienced by the contestants during the game. Most notably, consistent with the break-even effect,the RRA strongly decreases following earlier losses and risk seeking arises after large losses.To be published in American Economic ReviewMiljoenenjacht: voer voor economen
http://repub.eur.nl/pub/14122/
Fri, 16 Dec 2005 00:00:01 GMT<div>M.J. van den Assem</div><div>G.T. Post</div>
Onderzoek naar de risicohouding van deelnemers aan Miljoenenjacht
laat zien dat ‘pech in het spel’ deelnemers minder
gevoelig maakt voor risico’s. De echte pechvogels accepteren
zelfs ‘oneerlijke’ kansspelen. Psychologie lijkt belangrijker te
zijn dan veel economen denken.Does Risk Seeking Drive Stock Prices? A Stochastic Dominance Analysis of Aggregate Investor Preferences and Beliefs
http://repub.eur.nl/pub/14058/
Sat, 01 Oct 2005 00:00:01 GMT<div>G.T. Post</div><div>H. Levy</div>
We use various stochastic dominance criteria that account for (local) risk seeking to analyze market portfolio efficiency relative to benchmark portfolios formed on market capitalization, book-to-market equity ratio and price momentum. Our results suggest that reverse S-shaped utility functions with risk aversion for losses and risk seeking for gains can explain stock returns. The results are also consistent with a reverse S-shaped pattern of subjective probability transformation. The low average yield on big caps, growth stocks, and past losers may reflect investors’ twin desire for downside protection in bear markets and upside potential in bull markets.A Test for Mean-Variance Efficiency of a given Portfolio under Restrictions
http://repub.eur.nl/pub/6729/
Tue, 28 Jun 2005 00:00:01 GMT<div>G.T. Post</div>
This study proposes a test for mean-variance efficiency of a given portfolio under general linear investment restrictions. We introduce a new definition of pricing error or “alpha” and as an efficiency measure we propose to use the largest positive alpha for any vertex of the portfolio possibilities set. To allow for statistical inference, we derive the asymptotic least favorable sampling distribution of this test statistic. Using the new test, we cannot reject market portfolio efficiency relative to beta decile stock portfolios if short-selling is not allowed.