IDEAS home Printed from https://ideas.repec.org/a/wsi/ijtafx/v24y2021i05ns0219024921500242.html
   My bibliography  Save this article

Comparing The Small-Sample Estimation Error Of Conceptually Different Risk Measures

Author

Listed:
  • BENJAMIN R. AUER

    (Chair of Finance, Brandenburg University of Technology, Cottbus-Senftenberg, Erich-Weinert-Str. 1, 03046 Cottbus, Germany†Department of Finance, University of Leipzig, Grimmaische Str. 12, 04109 Leipzig, Germany‡CESifo Munich, Research Network Area Macro, Money and International Finance, Schackstr. 4, 80539 Munich, Germany)

  • FRANK SCHUHMACHER

    (#x2020;Department of Finance, University of Leipzig, Grimmaische Str. 12, 04109 Leipzig, Germany)

Abstract

Motivated by the need to correctly rank risky alternatives in many investment, insurance and operations research applications, this paper uses a generalized location and scale framework from utility theory to propose a simple but powerful metric for comparing the estimation error of conceptually different risk measures. In an illustrative application, we obtain this metric — the probability that a risk measure ranks two assets falsely in finite samples — via Monte Carlo simulation for fourteen popular measures of risk and different distributional settings. Its results allow us to highlight interesting risk measure properties such as their relative quality under varying degrees of skewness and kurtosis. Because of the generality of our approach, the error probabilities derived for classic risk measures can serve as a benchmark for newly proposed measures seeking to replace the classic ones in decision making. It also supports the identification of the most suitable risk measures for a given distributional environment.

Suggested Citation

  • Benjamin R. Auer & Frank Schuhmacher, 2021. "Comparing The Small-Sample Estimation Error Of Conceptually Different Risk Measures," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 24(05), pages 1-21, August.
    • Handle: RePEc:wsi:ijtafx:v:24:y:2021:i:05:n:s0219024921500242
    DOI: 10.1142/S0219024921500242
    as

    Download full text from publisher

    File URL: http://www.worldscientific.com/doi/abs/10.1142/S0219024921500242
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://libkey.io/10.1142/S0219024921500242?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Anja Vinzelberg & Benjamin R. Auer, 2022. "Unprofitability of food market investments," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(7), pages 2887-2910, October.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wsi:ijtafx:v:24:y:2021:i:05:n:s0219024921500242. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Tai Tone Lim (email available below). General contact details of provider: http://www.worldscinet.com/ijtaf/ijtaf.shtml .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.