We use stochastic dominance to test whether investors should prefer riskier securities as the investment horizon lengthens. Simulated return distributions for stocks, bonds, and U.S. Treasury bills are generated for holding periods of one to 20 years and stochastic dominance tests are run to...

In this paper, we will investigate whether there is any Sharpe ratio rule or Omega ratio rule that can be used to show that one asset outperforms another asset if it has a higher Sharpe ratio and/or Omega ratio. We find that Sharpe ratio rule could not detect preference of both risk averters and...

The Black-Scholes model and many of its extensions imply a log-normal distribution of stock returns. However, for holding periods of up to a year, the empirical return distribution (both conditional and unconditional) is not log-normal, but rather much closer to the logistic distribution. This...

Asness et. al. (2018) recently resurrect the size effect, concluding that it “…should be restored as one of the central cross-sectional empirical anomalies for asset pricing theory to explain”. We suggest a theoretical explanation for the size effect, based on the observation that many...

Hypothetical stock market investment experiment in six countries reveals that after controlling for the average profit in the whole stock market subjects prefer losing money rather than gaining money as long as their so-called "friends" lose more money. The sad result is that only 8.2% of the...

This paper examines the intertemporal relation between downside risk and expected stock returns. Value at risk (VaR), expected shortfall, and tail risk are used as measures of downside risk to determine the existence and significance of a risk-return tradeoff. We find a positive and significant...